Entrepreneurs’ Relief and EIS

Entrepreneurs’ Relief has been with us for some time now but there was a significant change last year which is worth mentioning again. Before 3^rd December 2014 if you had a gain which qualified under Entrepreneur’s Relief (ER) and then invested it in an Enterprise Investment Scheme (EIS) then the 10% ER rate is going to become a 28% EIS rate when the EIS shares are eventually disposed. The difference in tax rate between Entrepreneurs’ Relief and EIS represented a considerable disincentive for people selling their businesses to reinvest the proceeds into EIS shares.
That has now changed and capital gains that qualify for ER and are then invested in EIS qualifying investments will be taxed at the 10% ER rate when the shares are eventually sold. There is a three year time limit for making the investment and you don’t need to hold the shares for three years to obtain the deferral (though you do if you want the EIS CGT relief as well). You can also dispose of the shares over a period in order to make use of your annual CGT allowance.