Institute of Directors: Make it easier for investors to put cash into Enterprise Investment Schemes & UK startups

Business directors have called for the Government to simplify existing tax relief schemes in order to boost entrepreneurship and drive startup growth.

The full potential of the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) is “not fully being realised” the Institute of Directors (IoD) claimed in a new report.

EIS was introduced by the government in 1994 as a way to encourage private investment into companies too small to be listed on the Main Market of the London Stock Exchange.

The IoD said £1.6bn was invested in up to 24,000 firms through the investment tax relief schemes in 2013/2014. But almost all of them (95 per cent) came from large investors, while more than two thirds were funnelled into South East Asian startups. IoD spokesperson Jimmy McLoughlin said:

EIS and SEIS can open up the equity economy and help more people take a stake in the startup revolution. Too few businesses, however, are aware of these schemes, and not enough investors feel confident enough to get involved.

The IoD is pushing for EIS and SEIS investments to be included in a super-ISA, as well as the establishment of a new “aggregator fund” to enable smaller investors to participate collectively.

EIS investments come with a number of attractive tax incentives:

  • 30% upfront income tax relief, on condition your investment is held for at least three years.
  • Inheritance tax relief of 100% after two years, on condition the investments are held at time of death.
  • 100% capital gains tax deferral for the duration of the investment
  • Tax-free growth, provided income tax relief was given on the full amount invested and has not been withdrawn.
  • Loss relief on any holdings that are realised at a loss (net of any income tax relief already claimed on those holdings).

SEIS was setup in 2012 on similar principles and offers greater relief (50%) for smaller equity contributions (up to £250,000 as opposed to EIS’ top rate of £1m).