EIS income tax relief: how the 30% works in practice

Income tax relief is the headline EIS benefit and the one most investors claim. It works as a reduction in your income tax liability equal to 30% of the amount you subscribe for qualifying shares.

The calculation

The example assumes an income tax liability of at least £15,000 in the year the relief is claimed. Relief can reduce your liability to nil but no further; it is not repayable.

The limits

• £1 million of EIS investment a tax year qualifies for relief.
• This rises to £2 million where anything above £1 million is invested in knowledge-intensive companies.
• Relief is capped by your income tax liability for the year in question.
• You must not be connected with the company, broadly through employment or a holding above 30%.

Carry back

You can elect to treat all or part of an EIS subscription as though it were made in the previous tax year, and claim the relief against that year's income tax. This is useful when the current year's liability is too small to absorb the relief, or when the previous year's was unusually large. The previous year's annual limit still applies.

When relief is withdrawn

• You dispose of the shares within three years of the issue date.
• The company ceases to meet the qualifying conditions within that period.
• You receive value from the company, for example a loan or a non-commercial benefit.
• You become connected with the company during the qualifying period.