EIS Loss relief

Capital losses incurred from an investment in EIS-qualifying shares may qualify for loss relief (net of initial income tax relief). Losses arising on disposal of shares where income tax relief has been claimed, and retained, will continue to be eligible for uncapped offset against income tax of the year of loss, or income tax of the last preceding year on making a claim. Alternatively, as with all capital losses, they can be offset against capital gains of the same year or carried forward indefinitely.

Loss relief can reduce an investor’s exposure to 38.5% of the original capital invested if the investor elects to set the loss off against income tax due (assuming the investor pays income tax at a marginal rate of 45%).

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Example of loss relief

Mr Blogs invests £100,000 in EIS qualifying companies through the MMC EIS Fund. By doing so, Mr Blogs is entitled to reduce his income tax liability by a maximum of £30,000 (30% of £100,000) in the tax year that the Fund subscribes for shares in the EIS qualifying companies.

Mr Blogs net cash cost of investment is then £70,000. If the value of Mr Blogs investments fell to £0, he could claim up to £31,500 against his income tax liability (assuming Mr Blogs pays income tax at a marginal rate of 45%), and reduce his exposure to 38.5% of the original investment.

 

Other tax reliefs available under the Enterprise Investment Scheme:

Income Tax relief

Capital Gains Tax deferral

Tax-free Capital Gains

Inheritance Tax relief

 

Disclaimer

You should note that the favourable tax treatment outlined above may not continue in the future and that other taxes or costs may arise which are not paid through MMC or imposed by MMC. The information in this document has been drafted on the basis that each Investor is an additional rate taxpayer, the additional rate being and 45% for 2016/17. If you are in any doubt about your tax arrangements, you should contact a qualified tax adviser for appropriate tax advice.

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