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ideal flatmate and the Enterprise Investment Scheme

What does it mean for you?

ideal flatmate is a UK Enterprise Investment Scheme (EIS) eligible company. That means that many of our investors can achieve significant tax savings and protection against losses when they invest in us. 

What is EIS? 

The UK Government’s Enterprise Investment Scheme (EIS) is a tax relief scheme designed to stimulate investment into startups.

EIS offers big reductions to income and capital gains tax when you make an investment into an eligible startup. EIS makes qualifying companies a more attractive and less risky investment opportunity to many investors. 

Please note that ideal flatmate is not authorised to give tax advice. What applies to you will depend on your individual circumstances. You should always seek independent tax advice.

The Benefits Explained

EIS Income Tax Relief:
Claim up to 30% of the value of your investment back in the form of income tax relief. For example, if you make an investment of £10,000 you can save £3,000 in income tax.

EIS Capital Gains Tax Relief:

  • Disposal Relief:
    As long as you hold the shares for at least 3 years, all gains you make on those shares may be exempt from Capital Gains Tax when you come to sell them. e.g. if you buy your shares for £5,000 and in three years they are worth £15,000, you wouldn’t pay capital gains tax on the £10,000 increase if you sell your shares.
  • Deferral Relief:
    You don’t have to pay Capital Gains Tax until a later date if you sell an asset (any asset) and use the gain you made on it to buy shares in an EIS company. You will usually have to pay the Capital Gains Tax when you dispose of the EIS shares.

EIS Loss Relief:
If the business performs poorly and you lose money on your investment, you may claim loss relief.
The loss relief you can claim is equivalent to your income tax bracket. So if you pay at 45%, you can claim up to 45% of your net loss in income tax relief.
For example, if you make a £10,000 investment and the business fails meaning your investment is no longer worth anything you could claim loss relief.  Firstly you could claim the 30% income tax relief (£3,000 in this example). You can then claim loss relief on the remaining £7,000 of an amount equal to your income tax bracket – in this scenario 45% or £3,150, meaning you total loss is only £3,850.

Applying tax relief to a previous year (carry-back):
You can treat some or all of the shares as being issued in the previous tax year as long as you haven’t reached the limit for the value of EIS shares purchased (£1,000,000) in that year.

If, for example, you invest £10,000 in an EIS eligible company in the 2018-19 tax year, your income tax relief would be £3000 (30% of £10,000). You can apply to have that £3,000 carried back to the previous tax year (2017-2018) and relieved against your tax in that year, as long as you had not acquired more than £1,000,000 worth of EIS shares in that year.

EIS Inheritance Tax Relief:
You can generally claim Inheritance Tax relief of 100% after two years of holding the EIS shares. This means that any liability for Inheritance Tax is reduced or eliminated in respect of such shares. However, this relief is not available if the shares are listed on a recognised stock exchange.

Qualifying Criteria for Investors  

  • You must be a UK taxpayer.
  • You cannot be either: (i) an employee; (ii) a partner; (iii) a paid director
  • Maximum of £1 million investment in EIS qualifying companies in each tax year.
  • You must hold the shares for a minimum of 3 years. If you sell or gift them inside this time the relief could be clawed back. 
  • EIS tax relief can’t be carried forward.
  • You must be buying new shares that are not already on the market.

Invest in ideal flatmate now.

For more information on EIS tax relief please visit the HMRC website.

There are also some helpful practical examples on the Seedrs website.