This year interest in our EIS funds hasn't just been limited to income tax opportunities. A number of advisers have clients with capital gains that they had to pay at 40%. For these people, the opportunity to have this returned to them whilst they are invested in an EIS scheme, and then, when they come to repay it, to only have to do that at 18%, is too attractive to miss.

In this, the second part of the Questions and Answers Series, Julian Hickman aims to answer questions recently posed to him by IFAs relating to the EIS scheme and the CGT opportunities associated with it.

Question 3: An EIS fund offers capital gains tax opportunities too. Can you describe these?

Julian's answer: Subject to the 3 year qualifying rule, an investment in an EIS fund will be free from CGT. Unlike income tax, there is no maximum limit o the size of an investment that can be made and which wiill be 100% free of CGT. An additional element of relief is Deferral Relief. When an investor makes an EIS investment, he may defer an gain crystallised in the 36 months prior to the point of investment - or 12 months into the future - and hold onto this deferred gain until he is finally out of the EIS fund.

Question 4: Can you give an illustrative example of how this deferral could benefit an investor?

Julian's answer: Taking a recent example, a client makes an investment of £150,000 into an EIS fund in April 2010. In June 2007 he sold a share portfolio and paid a CGT bill for 40% of that sales; £25,000. He can claim that payment back from HMRC - in addition to receiving his income tax relief - and hold it until he exits from the EIS fund, at which point he must pay the deferred gain back to HMRC at the prevailing rate, which is currently 18%.

If you have any questions relating to EIS investments and would like to be part of the Questions and Answers series please email nrobson@longbow.co.uk or post a comment below.