What are the main ways you can save tax or get an income tax refund?
Ideally what you want in a tax saving scheme is to get your money back and a tax reduction at the same time.
One of the ways to make a smart tax investment is through an investment in the EIIS.
The Enterprise Investment Incentive Scheme (EIIS) allows you to obtain tax relief on a subscription for eligible shares, (new ordinary shares that have no present or future preferential rights to share in the profits) in an unquoted company that carries on a qualifying trade.
From 1 January 2020, the maximum EIIS relief you may claim in a tax year is:
- €500,000 (was €250,000) for a 7 year investment (was 10 years)
- €250,000 (was €150,000) for a four year investment
So, if you invest €1,000 in an EIIS, all things going well, you could cut your income tax by €400 which is the €1,000 at 40% and also get your €1,000 back.
Losses
The EIIS is aimed at investments in which your capital is genuinely at risk. You may be denied EIIS relief if your investment return is guaranteed, i.e., if there is any agreement, arrangement or understanding to eliminate the business risk.
One of the problems with the EIIS is that if your investment doesn’t turn out as you planned and you don’t get your money back, you get no tax relief for the loss. This part of the scheme needs fixing.
Other rules
You can’t invest in a connected company. That makes sense.
If your EIIS subscription cannot be relieved in a tax year because you have insufficient total income, or because the amount subscribed exceeds the maximum, you may carry forward the unrelieved amount for relief to the next tax year, and later tax years if necessary.
EIIS Funds
You may also obtain relief by buying units in a designated fund that in turn invests in EIIS qualifying companies.
Interested in talking to us about this? Contact Dave on 091 586020 or dave@dvmannion.ie