Autumn Statement: EIS sunset clause extended

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Last month, the Chancellor delivered his Autumn Statement, outlining measures to stimulate economic growth. Among his focal points were ‘growth measures to back British business,’ one of which was the highly anticipated extension of the Enterprise Investment Scheme (EIS). The existing sunset clause, the Chancellor announced, would be extended from 2025 to 2035.

What is EIS, and what is the sunset clause?

EIS is a tax incentive scheme that provides private investors with specific tax benefits and reliefs for investing in early-stage companies. Notably, investors can receive up to 30% of the invested amount back as credit against their income tax liabilities. This plays a crucial role in fostering the UK start-up ecosystem, and government statistics indicate a ‘significant rebound’ in EIS funding since the pandemic, to a level higher than previously seen.

The existing sunset clause, however, terminates the EIS income tax relief for all EIS investments made after 6th April 2025, clearly posing a setback for UK start-ups and early-stage businesses. Fortunately, the government will legislate in the Autumn Finance Bill 2023 to extend the sunset clause to 6th April 2035.

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What is the impact of the extension?

This extension will ensure that EIS investments made before 6th April 2035 will qualify for EIS income tax relief, provided all requirements of the applicable legislation are met. A further benefit of the EIS is that no capital gains tax (CGT) is payable on the disposal of shares of an EIS company after three years (or three years after the commencement of trade, if later), provided that EIS income tax relief has been obtained and not withdrawn. Consequently, the extension also positively affects CGT freedom, which will continue to be a potential benefit to investors, for as long as the income tax relief exists.

It should be noted that the EIS also offers additional tax reliefs, such as capital gains deferral relief, which were not affected by the sunset clause (as it only related to EIS income tax relief). These reliefs will continue to apply beyond the new 2035 cut-off date. Similarly, the Seed Enterprise Investment Scheme (SEIS), targeted at very early-stage companies, was never subject to the sunset clause, meaning this update has no bearing on the SEIS either.

Overall, the extension brings welcome news to early-stage businesses. Entrepreneurs can now seek more investment over an extended period with greater certainty that their future growth will be supported by EIS funding. While some advocate for the abolition of the sunset clause altogether, this decision makes clear that the government continues to recognise the crucial role entrepreneurship plays in boosting the economy.

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