Enterprise Investment Scheme relief provides very generous tax incentives for individuals to subscribe up to £1 million in any tax year in the acquisition of shares in unlisted (which includes AIM quoted) trading companies. But for some non-domiciled individuals, the additional availability of Business Investment Relief makes such investments very interesting indeed.
Briefly, the tax benefits afforded to investments which qualify for Enterprise Investment Scheme (EIS) relief (provided in most cases that the shares are held for 3 years) are as follows:
the ability to offset 30% of the amount subscribed against the individual's tax liability in the tax year of subscription or the year before exemption from capital gains tax on any gain realised on sale in the event that the investment fails, generous loss reliefs most likely, exemption from inheritance tax on the shares on the basis that they qualify for business property relief. For non-domiciled individuals who use the remittance basis, an additional attraction is that investments in EIS companies are likely also to qualify for Business Investment Relief (BIR).
This relief is intended to encourage non-domiciled UK residents to invest unremitted income and/or gains in the UK.
Briefly, the main features of the relief are as follows:
(subject to certain time limits) no taxable remittance of the funds used to subscribe for shares in a qualifying company on a subsequent sale of the shares, no taxable remittance as long as the sum originally invested is returned offshore within 45 days (or used to subscribe for shares in another BIR qualifying company). The conditions for BIR are more generous than those which apply to EIS relief. In particular, there is no cap on the relief, and the relief can apply to property development or rental companies.
In combination, these reliefs are highly attractive for remittance basis users, as the following examples illustrate.
Pierre doubles his money
Pierre is UK resident but domiciled outside the UK. He has been UK resident for five years and so does not need to pay a remittance basis charge.
He has £10 million of unremitted foreign income. He has no UK income.
Pierre brings £1 million of his unremitted income into the UK which he immediately uses to subscribe for shares in a company which qualifies for EIS relief and BIR.
As he does not have any UK income, he does not stand to benefit from the EIS income tax relief. Accordingly, in the same tax year as he makes his investment,...