The UK has a benign tax environment for business angel investors, principally in terms of the Enterprise Investment Scheme (EIS).

Provided an EIS qualifying investment is held for no less than 3 years from the date of issue, or 3 years from commencement of trade, a qualifying individual with no more than 30% interest in a company can reduce their income tax liability by an amount equal to 20% of the amount invested. The investments must be above £500 in eligible shares in a company and up to a maximum of £500,000 per investor in any tax year.

EIS Investments are exempt from Capital Gains Tax if the investment is held for longer than 3 years or 3 years after commencement of trade, provided the EIS relief was given and not withdrawn on those shares.

If EIS shares are disposed of at any time at a loss (after taking into account income tax relief), the loss can be set against the investors capital gains or his income in the year of disposal or the previous year. the net effect is to limit the investment exposure to 48p in the £1 for a 40% tax payer if the shares become worthless.

For more information, click here for the Inland Revenue's information factsheet on EIS. (Opens in a new browser window).