April 2023 marks the start of a brand new financial year and typically, we see a number of changes come into effect as a result of the mini-budget. In Q4 of 2022, the government announced changes to the EIS (Enterprise Investment Scheme) as the government continues to position the United Kingdom as a competitive business environment for start-ups and provide high ROI opportunities for investors.
Firstly, let’s take a look at the current limits and investment criteria for start-ups. Previously, SEIS rules allowed start-ups to raise up to £150,000 using seed capital from angel investors under specific requirements and criteria. A company needed to be trading for a maximum of two years and their gross assets immediately before EIS investment were not able to exceed £200,000. So what are the proposed changes that are now in effect as of April 6th 2023-2024?
Please note that the information below is for general informational purposes only. For further clarification, please seek professional tax advice before making financial decisions.
Changes to the EIS scheme
Change 1: The ‘sunset clause’ has been lifted
The scheme was previously due to end in 2025. The Chancellor announced that the intention is to continue the scheme past the pre-proposed cut-off.
This is excellent news both for start-ups and investors as it signifies that the scheme has been a success up to this point. Start-ups can continue to use the EIS scheme as a resource to raise long-term capital and support their growth, whilst investors can continue to capitalise on exciting investment opportunities.
Change 2: The Limits for SEIS have increased
Not only has the sunset clause been lifted, but the government also continues to expand the scheme by attempting to include a higher number of companies who qualify for the scheme as well as increasing the value to those who already use the scheme. Here is a summary of the limit changes:
- Previously, start-ups could only benefit from the scheme in the first two years of trading. This has increased to 3 years, meaning a higher number of companies can benefit.
- In previous years, companies would need up to £200,000 of gross assets to quality. This has been raised to £350,000.
- Companies could only raise up to £150,000 through the SEIS scheme. This has been increased to £250,000 with £5m a year raised though EIS.
This is exciting news and increases the pool of start-ups that quality. This means innovative, knowledge-based businesses that have been incorporated for over the two-year limit can now seek capital under the scheme.
Change 3: Investors can double their investment
Previously, an individual investor could only invest £100,000 into the SEIS scheme. This has raised to £200,000 as the government encourages more investment.
Remember that these changes don’t kick in until the next financial year in which the company has raised funds under the EIS. You can read more about the differences between EIS and SEIS here.
What does this mean for investors?
The changes are great for start-ups, however, EIS investors can now invest double the amount that was stipulated in previous years, which in effect means a higher tax saving is possible. Those who have experienced successful investments can double down on their investment should they choose to do so.
A recap on EIS investments:
EIS investors can receive a mix of upfront and ongoing tax reliefs. Here are the main benefits of investing in the scheme:
- You may be eligible to claim 30% income tax relief on investments
- An EIS scheme is a tax-advantageous way to supplement other long-term investments
- You’ll potentially be able to defer paying capital gains tax on any realised gains
- What is EIS Deferral Relief?
- Tax efficient investing in the UK
- EIS rules for investors explained
- What is EIS tax relief?
- What are the benefits of EIS?
- EIS advanced assurance
Disclaimer: The information and opinions within this article are for general information purposes only, are not intended to provide an exhaustive summary of all relevant issues or to constitute investment, tax, legal, or other professional advice. They should not be relied on for, or treated as, a substitute for specific advice relevant to particular circumstances and you should seek your own investment, tax, legal or other advice as appropriate. In not doing so you risk making commitments to products and/or strategies that may not be suitable to your needs. Neither the writer nor EMV Capital Limited accept any responsibility for any errors, omissions or misleading statements in this article or for any loss which may arise from reliance on materials contained on this article.