What is “connection by financial interest” and what are “associates” for EIS and SEIS?

An investor that is “connected by financial interest in a company” holds more than 30% of the share capital, voting rights or rights to assets if the company is wound up.

If they do, they will not be eligible to claim income tax relief under EIS or SEIS.

A person can become connected through an “associate” holding share capital, voting rights or rights to assets in a winding up. For example, if an investor owns 28% of a company and an associate owns 5%, that investor will not be able to claim income tax relief under the enterprise investment scheme or seed enterprise investment scheme.

Associates” include:

  • Business partners
  • Trustees of any settlement where you are a settlor or beneficiary
  • Relatives

Relatives” are:

  • spouses
  • civil partners
  • parents and grandparents
  • children and grandchildren

(Not siblings)

For EIS, this condition applies for the time period starting 2 years before the investment is made and ending 3 years after the investment is made, or three years after the commencement of the trade, whichever is later.

For SEIS, this condition applies for the time period starting with incorporation and ending 3 years after the investment is made, or three years after the commencement of the trade, whichever is later.

Learn more about income tax relief under EIS and SEIS here.