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Health and Care update - Enterprise Investment Scheme

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17 May 2016

New rules which come into effect from April 2016 of this year will significantly restrict the tax relief higher earners can obtain on their pension contributions. The rules introduce a tapered annual allowance whereby individuals will lose £1 of their annual allowance for every £2 they earn over £150,000, subject to a minimum annual allowance of £10,000. This in effect means that any individual with earnings in excess of £210,000 will only be able to contribute £10,000 into a pension in any year and still receive tax relief on their contribution.

This has meant many higher earners are looking at what other tax efficient savings options there are available to them, to compensate for the huge reduction in their pension contribution allowance.

One such investment opportunity which is attracting much attention is the Enterprise Investment Scheme (EIS).

The EIS was originally introduced in 1994, and its aim is to encourage investment into small unquoted companies through a series of tax reliefs.

These reliefs include:

  • 30% income tax relief on any contributions into EIS funds, subject to a maximum investment of £1 million per year.
  • The ability to defer the payment of an existing Capital Gains Tax liability through investment of the gain into EIS qualifying shares.
  • Almost all investments into these schemes qualify for Business Property Relief at 100% meaning there is no Inheritance Tax liability on these shares.
  • All monies held within EIS funds should grow tax free. 

Investors often approach EIS funds with caution, due to the higher risks involved with investing in such small companies. However, in more recent times, many EIS fund managers have attempted to mitigate many of the risks involved.

This can be done in a number of ways. For example, some funds have assets backing the investment, including property and technology, whilst other investment funds have a clear predetermined exit strategy, meaning there is a known clear plan for the fund not reliant on other unknown factors.

With over 40 EIS funds currently available, it can be very difficult for investors to decide which is the most appropriate fund for them. Hazlewoods Financial Planning use a series of research and analytical tools to filter funds to help recommend the most appropriate ones to clients.


Andrew Brookes - Partner and Head of Healthcare
Andrew Brookes
Partner and Head of Healthcare Contact details