EIS guide

36 CLAIMING THE TAX RELIEFS The rest of the process is unchanged, although an EIS5 is only issued by HMRC once 90% of the fund has been invested, which should be borne in mind by investors and advisers. If the fund is not an ‘approved EIS fund’, it is referred to as an ‘unapproved EIS fund’. An investor in an unapproved EIS fund will still receive individual EIS3 forms for each underlying investment made by the manager, and the relief for each investment has to be claimed separately, following the process described. HMRC has made progress in digitalising the process of issuing EIS forms. This is expected to speed up advance assurance, EIS1 submissions, and EIS3 issuances. This is an ongoing process that has already started. TIME LIMITS FOR CLAIMS There are time limits for claiming the various EIS tax reliefs. • An EIS1 must be submitted by the EIS company within two years of the end of the tax year in which the subscription took place or, if the four-month trading period straddles the end of a tax year, two years from the end of that four-month period. • The overall time limit for an investor to claim the income tax relief is five years from 31 January, following the tax year in which the EIS shares are issued. • Deferral Relief claims must be made no later than 31 January falling five years after the end of the year of assessment in which disposal occurred. IHT RELIEF As noted earlier, the IHT relief is actually obtained by claiming Business Relief (BR), which is administered separately to the income tax and CGT reliefs. A claim for BR would normally be made during the settlement of the shareholder’s estate (unless it relates to a chargeable lifetime transfer of business property). To obtain IHT relief via BR, the executors of the estate will need to complete a copy of probate return form IHT412 and return this to HMRC as part of the overall probate process. HMRC will then assess the claim. EIS INCOME TAX RELIEF CLAIM TIMELINE tax year 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 EIS Shares issued 5-year clock to claim Income Tax Relief starts 5-year period to claim Income Tax Relief ends 31 January 31 January There are a number of different ways to gain exposure to EIS-qualifying shares and, as with conventional equities, it is often better to engage the services of a professional manager, in order to benefit from their expertise and greater levels of diversification. These arrangements are referred to as EIS ‘funds’ and the providers of these arrangements are known as fund managers. It is estimated that, collectively, EIS funds have accounted for the majority of annual EIS investment. In this section we’ll look at the concept of EIS funds in more detail. EIS structures The most straightforward way to get exposure to EIS-qualifying shares is by investing directly in a single company’s share issue. However, this entails spending significant amounts of time and effort on research, and requires the investor or their adviser to have the requisite knowledge to assess the opportunity. It also makes diversification difficult or near impossible. SINGLE COMPANY EIS A discretionary managed portfolio is an individual service provided by an EIS manager to an investor. Technically, this is not a ‘fund’ at all; it is a bespoke portfolio specifically constructed to meet the needs and objectives of that particular individual. It is likely that every subscriber to a discretionary managed service will have a slightly different portfolio, as the EIS manager will make investments on the basis of their suitability for each individual investor. DISCRETIONARY MANAGED PORTFOLIO The Alternative Investment Fund Managers Directive (AIFMD) was announced on 22 July 2013, and introduced rules for qualifying fund managers on delegation, transparency, disclosure, remuneration, debt and reporting. Alternative Investment Funds (AIFs) are collective investment undertakings (CIUs) that have a defined investment policy, among other criteria. The FCA has advised that it is likely that, where the manager is not making investments on the basis of their suitability for any individual investor, an EIS fund should be considered to be a CIU and an AIF. With an AIF, all investors will be invested into the same basket of underlying companies, as the EIS manager does not have to consider the individual needs and objectives of each investor - it only needs to consider whether the EIS fund is appropriate for the investor. ALTERNATIVE INVESTMENT FUNDS