EIS guide

62 CASE STUDIES Example Deployment Timeline Commonly, EIS managers quote a timeline of 12 to 24 months to fully invest each subscription into EIS-qualifying companies. This is dependent on the supply of deals the manager has access to and the number of investee companies it targets for each investor for diversification purposes. The longer the time taken for full deployment, the bigger the potential impact of cash drag on an investor’s uninvested funds. Since the three-year qualification period does not start until funds are invested, it also extends that timeline. And from a tax-planning perspective, it is important to take deployment lead times into account, understanding that deployment may take place over several tax years: Scenario A – Mr Jones invests £100,000 with an EIS discretionary fund manager in September 2019: • Mr Jones wants to offset a £30,000 income tax bill he has incurred in August 2019 while also starting the clock to become eligible for IHT Business Relief. • £60,000 of his EIS subscription is deployed into EIS-qualifying investee companies before the end of the 2019/20 tax year. • The remaining £40,000 of the subscription is deployed into EIS-qualifying investee companies during the 2020/21 tax year. In this example, Mr Jones has to use the carry- back facility, allowing funds invested in one tax year to be applied to relieve income tax incurred in the previous tax year in order to offset his full income tax bill. £100,000 INVESTED WITH EIS MANAGER Sep-19 FUNDS DEPLOYED BY ACQUIRING EIS-QUALIFYING SHARES £60,000:2019/20 £40,000: 2020/21 YEARS IN WHICH EIS INCOME TAX RELIEF CAN BE USED £30,000 (30% of £100,000) relief available for 2019/20 tax year SCENARIO A 63 CASE STUDIES Scenario B – Mr Jones invests £100,000 with an EIS discretionary fund manager in March 2020, the end of the 19/20 tax year: • Mr Jones wants to offset a £30,000 income tax bill he has incurred in August 2019 while also starting the clock to become eligible for IHT Business Relief. • £10,000 of the subscription is deployed into EIS-qualifying investee companies before the end of the 2019/20 tax year. • £60,000 of the subscription is deployed into EIS-qualifying investee companies during the 2020/21 tax year. • The remaining £30,000 of the subscription is deployed into EIS-qualifying investee companies during the 2021/22 tax year. • Mr Jones can only offset £21,000 of the £30,000 income tax liability. This is because only 70% of his £100,000 subscription to EIS was deployed in the tax year the liability was incurred, or in the following year. Of course, the £30,000 deployed in 2021/22 could be used to offset up to £9,000 (30% of £30,000) of other income tax liabilities incurred in 2020/21 or 2021/22, but that wasn’t the original plan. £100,000 INVESTED WITH EIS MANAGER Mar-20 FUNDS DEPLOYED BY ACQUIRING EIS-QUALIFYING SHARES £10,000:2019/20 £60,000: 2020/21 £30,000: 2021/22 YEARS IN WHICH EIS INCOME TAX RELIEF CAN BE USED £21,000 (30% of £70,000) relief available for 2019/20 tax year £30,000 relief available for 2020/21 or 2021/22 SCENARIO B