EIS: “risk to capital” condition

/ 25 March 2020

Stephen Deutsch

The Enterprise Investment Scheme (“EIS”) and Seed Enterprise Investment Scheme (“SEIS”) give tax relief for investment in unquoted trading companies, subject to detailed conditions.  One such condition is that there should be “significant risk that there will be a loss of capital of an amount greater than the net investment return”.

It’s a pretty vague condition and until very recently we have continued to see HMRC taking an increasingly stringent approach to it.  It would probably be mildly unfair to say that HMRC seem to have been using it as a “catch-all” to deny relief for investments which they didn’t much like the look of; but only mildly unfair.

However, we think that such challenges are unlikely now to be made.  In the current circumstances we can think of few unquoted companies (and not many quoted ones either, come to that) in which an investment would not carry a “substantial risk” of that kind.

For any potential investors interested in exploring EIS and SEIS in the future, our tax experts would be happy to share their experience of the potential and pitfalls of these schemes. You can also read about EIS and SEIS in our article here. For further information, please get in touch with your usual BKL contact or use our enquiry form.

We also have a range of guidance and resources available via our website’s coronavirus page.

Above all, stay home and stay well.

Stephen Deutsch

Senior Adviser, Tax

T +44 (0)20 8922 9119
E stephen.deutsch@bkl.co.uk

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