EIS Tax Relief & Rules

The Highgate Tech Fund Team is a group of successful technology entrepreneurs who have founded and grown many tech businesses

We charge no fees to investors, 100% of your cash is invested
We are business builders with a track record of exits via M&A and IPO's
We are here to invest and actively participate in exciting companies, helping them to grow and prosper
We are here to offer you a diversified portfolio of tech companies, aiming to provide you with a greater return
We are investing our own cash in this fund

Please download our brochure today and find out how you can both gain significant tax benefits under the EIS scheme and participate in investing in the sector which we believe is leading Britain out of the recession.

Highgate Tech Fund LLP is a member of the EIS Association

Member of the EIS Association

www.eisa.org.uk

EIS Tax Relief & Rules

EIS tax relief comprises (i) income tax relief, (ii) capital gains tax deferral relief for subscriptions, (iii) capital gains tax exemption, (iv) loss relief and (v) inheritance tax relief. The reliefs, described below, which must be claimed, are available provided the Investor and the EIS Qualifying Company comply with the EIS legislation.

Income Tax Relief

EIS income tax relief allows investors who are not connected with the EIS Qualifying Company to reduce the amount of their liability to income tax, provided they hold the EIS shares for a three-year period. Employees, paid Directors and investors with more than a 30% interest in the company are deemed connected with it. Income tax relief is available to individuals (counting husbands and wives separately) in respect of the amount subscribed for eligible shares in an EIS Qualifying Company at the rate of 30%, on a maximum of £500,000 for any one tax year. The Investor has the right, in respect of each separate investment, to elect to carry back for the 2010 tax year at the previous 20% rate. The full amount of the relief in any one year is subject to a maximum of £500,000. This Relief is usually either passed to the Investor in the form of a tax rebate or via an adjustment in PAYE code.

Example

Initial Investment	£100,000
Less income tax relief at 30%	£(30,000)
Net cost of Investment	£70,000

Capital Gains Tax Deferral Relief for Subscriptions

Where an individual has a chargeable capital gain, a claim may be made to defer the assessment of that chargeable gain, or any part of it, which arises within the period of three years before or one year after an investment has been made in an EIS Qualifying Company. The amount of gains that may be deferred is subject to no maximum and is limited only by the amount subscribed in the EIS Qualifying Company. Gains may be deferred until the shares are dispose of or, if earlier, until certain other events occur. A gain may become payable again once the shares in the EIS Qualifying Company have been sold.

Example

Initial Investment	£100,000
Income Tax Relief	£(30,000)
Capital Gains Deferral	£(28,000)
Net cost of Investment	£42,000

Capital Gains Tax Exemption

There is no CGT payable on gains in respect of Investments made in an EIS Qualifying Company (on which EIS Relief has been obtained and not withdrawn) where the investments have been held for at least three years from the date of subscription or from the date of commencement of the EIS Qualifying Company’s trade if later.

Example

Initial investment	£100,000
Less income tax relief	£(30,000)
Net cash outlay	£70,000
Hypothetical residual value of investment after 3 years	£160,000
Total gain tax free	£90,000

Loss Relief

If any investment in an EIS Qualifying Company realise capital losses, then loss relief applies (net of initial income tax relief). This loss can be offset against income tax of the same year or a preceding one, or against capital gains of the same year or carried forward. Loss relief can reduce the Investor’s exposure to 35% of the original investment, (assuming a 50% tax payer offsetting against income tax relief). Losses offset against capital gains tax will obtain relief at 28% for the tax year 2010/11 and at the prevailing rate in subsequent years.

Example

Initial Investment	£100,000
Less income tax relief at 30%	£(30,000)
Net cost of Investment	£70,000
If Investment fell to £0, Net loss	£(70,000)
Loss relief at 50%	£35,000
Net loss	£(35,000)
Percentage of Original Outlay	35%

EIS AND INHERITANCE TAX RELIEFS SUMMARY

Shareholdings in EIS Qualifying Companies may fall outside of Inheritance Tax (IHT) after two years due to the interaction with Business Property Relief. This enables potentially significant holdings to be preserved without being taxed. The current exempt level for IHT is £325,000 with any excess being taxed at 40%.The following is a summary of the main provisions of Business Property Relief for Inheritance Tax; it does not set them out in full and Investors should seek professional advice before making any investment to ensure the availability of the relief.

Inheritance Tax Total Relief

If the investment has been held for at least two years before death, the investment should, in most cases, be entirely free from Inheritance Tax and with the other benefits of the EIS, the effective cost of investment may be reduced to zero.

Basic Rules

Relief is available for transfers of certain categories of business and of business assets (“relevant business property”), if they qualify as “relevant business property” and the transferor has owned them for a minimum period. The relief is available for transfers in life and on death. It is also available when relevant business property is chargeable as settled property. The relief reduces the value transferred by a transfer of relevant business property.

Relevant Rates of Relief

The rate is 100% for shares which are not listed on a recognised exchange (“unquoted shares”) and/or traded on AIM or PLUS Markets. Relief may be restricted, though, if at the time of the transfer the company owns an asset that is not required for use in the business. This section is only a condensed summary and should not be construed as constituting advice, which a potential investor should obtain from his own independent investment or taxation adviser before applying for shares in the Fund. None of the Fund’s Board, Investment Adviser, Investment Partner or the advisers to the Fund can guarantee that an Investor will obtain any of the tax reliefs described above.

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