Income Tax Act 2007

Chapter 1 U.K. Introduction

EIS relief U.K.

156 Meaning of “EIS relief” and commencement U.K.

(1) This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares.

(2) In this Part “EIS” stands for the enterprise investment scheme.

(3) In accordance with section 1034(3), this Part has effect only in relation to shares issued on or after 6 April 2007.

This is subject to Schedule 2 (transitional provisions and savings).

157 Eligibility for EIS relief U.K.

(1) An individual (“the investor”) is eligible for EIS relief in respect of an amount subscribed by the investor on the investor's own behalf for an issue of shares in a company (“the issuing company”) if—

[F1 (za) the risk-to-capital condition is met (see section 157A),]

(a) the shares (“the relevant shares”) are issued to the investor,

[F2 (aa) the shares are issued before 6 April [F3 2035],]

(b) the investor is a qualifying investor in relation to the relevant shares (see Chapter 2),

(c) the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and

(d) the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4).

[F4 (1A) The Treasury may, by regulations, amend subsection (1)(aa) to substitute a different date for the date for the time being specified there.]

F5 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 157(1)(za) inserted (15.3.2018) by Finance Act 2018 (c. 3), s. 14(1)(a)(4); S.I. 2018/931, reg. 2(a)

F2 S. 157(1)(aa) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 2(2)

F3 Word in s. 157(1)(aa) substituted (3.9.2024) by Finance Act 2024 (c. 3), s. 11(1)(a)(2); S.I. 2024/897, reg. 2

F4 S. 157(1A) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 2(3)

F5 S. 157(2) omitted (17.7.2012) (with effect in accordance with Sch. 7 para. 22 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 7 para. 2

F6 S. 157(3) omitted (17.7.2012) (with effect in accordance with Sch. 7 para. 22 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 7 para. 2

[F7 157A Risk-to-capital condition U.K.

(1) The risk-to-capital condition is met if, having regard to all the circumstances existing at the time of the issue of the shares, it would be reasonable to conclude that—

(a) the issuing company has objectives to grow and develop its trade in the long-term, and

(b) there is a significant risk that there will be a loss of capital of an amount greater than the net investment return.

(2) For the purposes of subsection (1)(b)—

(a) the risk is to be determined by reference to a loss of capital, and the net investment return, for the investors generally,

(b) the reference to a loss of capital is to a loss of some or all of the amounts subscribed for the shares by the investors, and

(c) the reference to the net investment return is to the net investment return to the investors (whether by way of income or capital growth) taking into account the value of EIS relief.

(3) For the purposes of subsection (1) the circumstances to which regard may be had include—

(a) the extent to which the company's objectives include increasing the number of its employees or the turnover of its trade,

(b) the nature of the company's sources of income, including the extent to which there is a significant risk of the company not receiving some or all of the income,

(c) the extent to which the company has or is likely to have assets, or is or could become a party to arrangements for acquiring assets, that could be used to secure financing from any person,

(d) the extent to which the activities of the company are sub-contracted to persons who are not connected with it,

(e) the nature of the company's ownership structure or management structure, including the extent to which others participate in or devise the structure,

(f) how any opportunity for investment in the company is marketed, and

(g) the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities.

(4) If the issuing company is a parent company—

(a) any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and

(b) any reference in subsection (3)(a) to (e) to the company is to any group company.]

Textual Amendments

F7 S. 157A inserted (15.3.2018) by Finance Act 2018 (c. 3), s. 14(1)(b)(4); S.I. 2018/931, reg. 2(a)

158 Form and amount of EIS relief U.K.

(1) If an individual—

(a) is eligible for EIS relief in respect of any amount subscribed for shares, and

(b) makes a claim in respect of all or some of the shares included in the issue,

the individual is entitled to a tax reduction for the tax year in which the shares were issued (“the current year”).

This is subject to the provisions of this Part.

(2) The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the [F8 EIS rate] for the current year on—

(a) the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims EIS relief [F9 (qualifying shares)], or

(b) if less, [F10 the allowable amount].

[F11 (2ZA) The allowable amount is—

(a) if the qualifying shares do not include any KIC shares: £1 million;

(b) if the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares is £1 million or more: £2 million;

(c) if neither paragraph (a) nor paragraph (b) applies: £1 million plus the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares.

(2ZB) In subsection (2ZA) “KIC shares” means shares in a company which, or in companies each of which, is a knowledge-intensive company at the time the shares are issued (see section 252A and subsection (6)).]

[F12 (2A) In this Part “the EIS rate” means [F13 30%].]

(3) The tax reduction is given effect at Step 6 of the calculation in section 23.

(4) F14 ... if in the case of any issue of shares—

(a) which are issued F14 ... in the current year, and

(b) in respect of the amount subscribed for which the individual is eligible for EIS relief,

the individual so claims, [F15 subsections (1) to (2ZB)] apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year; and the individual's liability to tax for both tax years is determined accordingly.

F16 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F17 (6) If the issuing company began to carry on a trade less than three years before the date the relevant shares are issued, section 252A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (2) to (4A)—

“(2) The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation.

(3) The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure.

(4) In subsections (2) and (3)—

• “relevant operating costs” means—

  (a)

  if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and

  (b)

  if the issuing company is a parent company at the time the relevant shares are issued, the sum of—

  (i)

  the operating costs of the issuing company, and

  (ii)

  the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company;

• “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued.”

(7) In subsection (6) “trade” includes—

(a) any business or profession,

(b) so far as not within paragraph (a), the carrying on of research and development activities from which it is intended a trade will be derived or will benefit,

(c) preparing to carry on a trade.]

Textual Amendments

F8 Words in s. 158(2) substituted (21.7.2008 with effect in accordance with Sch. 1 para. 65 of the amending Act) by Finance Act 2008 (c. 9), Sch. 1 para. 13(2)

F9 Words in s. 158(2)(a) inserted (6.4.2018) by Finance Act 2018 (c. 3), Sch. 4 paras. 1(2), 10; S.I. 2018/931, reg. 3(a)

F10 Words in s. 158(2)(b) substituted (6.4.2018) by Finance Act 2018 (c. 3), Sch. 4 para. 1(3), 10; S.I. 2018/931, reg. 3(a)

F11 S. 158(2ZA)(2ZB) inserted (6.4.2018) by Finance Act 2018 (c. 3), Sch. 4 paras. 1(4), 10; S.I. 2018/931, reg. 3(a)

F12 S. 158(2A) inserted (21.7.2008 with effect in accordance with Sch. 1 para. 65 of the amending Act) by Finance Act 2008 (c. 9), Sch. 1 para. 13(3)

F13 Word in s. 158(2A) substituted (13.10.2011) (with effect in accordance with s. 42(7)(8) of the amending Act) by Finance Act 2011 (c. 11), s. 42(2)(6); S.I. 2011/2459, art. 2

F14 Words in s. 158(4) omitted (with effect in accordance with Sch. 8 para. 13(2) of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 8 para. 6(2)

F15 Words in s. 158(4) substituted (6.4.2018) by Finance Act 2018 (c. 3), Sch. 4 paras. 1(5), 10; S.I. 2018/931, reg. 3(a)

F16 S. 158(5) omitted (with effect in accordance with Sch. 8 para. 13(3) of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 8 para. 6(3)

F17 S. 158(6)(7) inserted (6.4.2018) by Finance Act 2018 (c. 3), Sch. 4 paras. 1(6), 10; S.I. 2018/931, reg. 3(a)

Miscellaneous U.K.

159 Periods A, B and C U.K.

(1) This section applies for the purposes of this Part in relation to any shares issued by a company.

(2) “Period A” means the period—

(a) beginning—

(i) with the incorporation of the company, or

(ii) if the company was incorporated more than two years before the date on which the shares were issued, two years before that date, and

(b) ending immediately before the termination date relating to the shares (see section 256).

(3) “Period B” means the period—

(a) beginning with the issue of the shares, and

(b) ending immediately before the termination date relating to the shares.

(4) “Period C” means the period—

(a) beginning 12 months before the issue of the shares, and

(b) ending immediately before the termination date relating to the shares.

160 Overview of other Chapters of Part U.K.

In this Part—

(a) Chapter 5 provides for the attribution of EIS relief to shares and the making of claims for such relief,

(b) Chapter 6 provides for EIS relief to be withdrawn or reduced in the circumstances mentioned in that Chapter,

(c) Chapter 7 makes provision with respect to the procedure for the withdrawal or reduction of EIS relief, and

(d) Chapter 8 contains supplementary and general provisions.

161 Other tax reliefs relating to EIS U.K.

(1) Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the income of an individual who incurs an allowable loss for capital gains tax purposes on a disposal of shares to which EIS relief is attributable.

(2) Subsection (3) of section 392 (loan to buy interest in close company) provides that subsection (2)(a) of that section does not apply if at any time—

(a) the individual by whom the shares are acquired, or

(b) that individual's spouse or civil partner,

makes a claim for EIS relief in respect of the shares.

(3) Section 150A of TCGA 1992 makes provision about gains or losses on the disposal of shares to which EIS relief is attributable.

(4) Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under EIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.

F18 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F18 S. 161(5) omitted (21.7.2008 with effect in accordance with Sch. 2 para. 56(3) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 2 para. 54