Summary:
The Enterprise Investment Scheme (EIS) is gaining attention among pension savers concerned about inheritance tax (IHT) liabilities. EIS, designed to support early-stage businesses, offers significant tax reliefs, including upfront income tax relief, capital gains tax exemptions, and IHT benefits. With upcoming changes to pension tax rules in 2027, EIS presents an attractive alternative for estate planning. However, the high-risk nature of these investments requires careful consideration, particularly for those with substantial existing savings.
What This Means for You:
- Tax Efficiency: EIS offers 30% upfront tax relief and exemptions from capital gains tax, making it a powerful tool for tax planning.
- Inheritance Tax Benefits: Investments held for over two years are exempt from IHT, with reduced liability for amounts exceeding £1 million starting April 2026.
- Risk Management: Investing through EIS funds can mitigate the high risk associated with individual early-stage businesses.
- Future Outlook: With pension tax rules tightening, EIS could become a key component of estate planning strategies, but expert advice is essential.
Original Post:
Pension savers concerned about inheritance tax (IHT) are exploring new retirement planning options. The Enterprise Investment Scheme (EIS) is one such option, with EIS-focused investment managers launching new products to meet growing demand.
The EIS, which has been running for over 30 years, is often seen as a niche investment for sophisticated and wealthy investors. The scheme supports small and early-stage businesses, which carry significant risk. However, specialist managers now offer funds that allow investors to spread risk across multiple qualifying businesses while benefiting from generous tax reliefs.
From April 2026, the IHT relief on EIS investments will change, limiting full exemption to the first £1 million of assets. Beyond this, only 50% of the excess will be subject to IHT, reducing the tax rate from 40% to 20%. This, combined with upcoming changes to pension tax rules, makes EIS an attractive option for estate planning.
EIS also offers other tax perks, including 30% upfront tax relief on investments up to £1 million annually, capital gains tax exemptions, and the ability to offset losses against income tax. However, the high-risk nature of EIS investments means they are best suited to those with substantial existing savings in conventional vehicles like pensions and ISAs.
Independent advice is crucial when considering EIS investments, as demand for the scheme is expected to rise significantly in the coming years.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion, and analysis with a MoneyWeek subscription.
Extra Information:
Official HMRC Guide to EIS: Explains the eligibility criteria and tax benefits of the Enterprise Investment Scheme.
Understanding Investment Risks: A resource to help assess the risks associated with high-risk investments like EIS.
People Also Ask About:
- What is the Enterprise Investment Scheme?: A UK government initiative offering tax reliefs to investors in small, high-risk companies.
- How does EIS reduce inheritance tax?: EIS investments are exempt from IHT after being held for two years, with partial relief for amounts above £1 million starting in April 2026.
- Is EIS suitable for all investors?: No, EIS is best for experienced investors with significant existing savings due to its high-risk nature.
- What are the tax benefits of EIS?: EIS offers upfront income tax relief, capital gains tax exemptions, and IHT benefits.
Expert Opinion:
“The EIS presents a unique opportunity for tax-efficient estate planning, particularly in light of upcoming changes to pension tax rules. However, the high-risk nature of these investments demands a cautious approach, and expert advice is essential to navigate the complexities and maximize benefits.”
Key Terms:
- Enterprise Investment Scheme (EIS)
- Inheritance tax planning
- Tax relief for UK investors
- High-risk investment strategies
- Estate planning alternatives
ORIGINAL SOURCE:
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