Claiming Income Tax Relief When You Have No Income – Avoid Costly Mistakes with EIS

The Enterprise Investment Scheme (EIS) has long been one of the most tax-efficient investment opportunities in the UK. However, a recent Tax Tribunal case has revealed a surprising pitfall—one that could cost investors millions in lost tax relief.

If you are an investor who has little or no taxable income, you may still need to claim EIS Income Tax relief—even if you can’t benefit from it directly—to qualify for Capital Gains Tax (CGT) exemption later on.

What Are the Tax Benefits of EIS?

The EIS scheme offers generous tax incentives for those investing in qualifying unquoted trading companies, including:

30% Income Tax relief on the amount invested (up to £2 million per year).
Full CGT exemption on any gain when selling the shares after at least three years.
CGT deferral relief, which allows gains from other disposals to be reinvested into EIS shares and deferred.

The Catch – You Must Claim Income Tax Relief to Get CGT Exemption!

While many investors claim EIS to reduce their Income Tax liability, some who have little or no taxable income (e.g., those living off capital) may skip making an EIS Income Tax relief claim. This can be a costly mistake.

A recent Tax Tribunal case exposed this issue:

• The investor had no taxable income and did not claim EIS Income Tax relief when buying the shares in 2013.
• He sold the shares in 2019 for a £8.28 million gain and claimed CGT exemption under EIS.
• HMRC denied the CGT exemption because the investor never made a valid EIS Income Tax relief claim.
• By the time the investor realised, the deadline to claim had passed, and the Tax Tribunal refused to allow a late claim.
• As a result, he lost his full CGT exemption and faced a huge tax bill.

Lesson Learned: Even if you have no taxable income, you must still submit a claim for EIS Income Tax relief within the deadline to secure future CGT exemption.

What’s the Deadline for Claiming EIS Relief?

The Income Tax relief claim deadline is the fifth anniversary of the normal self-assessment filing date for the tax year in which the shares were issued.

For example:

• Shares issued in 2013/14 → Tax return due by 31 January 2015.
• EIS Income Tax relief claim deadline = 31 January 2020.

Once this deadline passes, you cannot claim EIS relief—and you lose CGT exemption.

Are You Planning to Invest in EIS? Avoid Costly Mistakes!

The EIS and Seed EIS schemes provide outstanding tax benefits, but they come with strict rules that must be followed. A single oversight—like not claiming relief when you have no taxable income—could cost you millions in extra tax.

At Merranti Accounting, we can help you:
 Ensure you properly claim EIS relief, even if you have no taxable income.
 Plan your investments to maximise tax efficiency.
 Assist your company in raising funds through EIS or Seed EIS while staying compliant with HMRC rules.

 Thinking of investing in EIS? Contact us today to avoid tax pitfalls and secure your full tax benefits.

Find more from the spring news letter here