The Enterprise Investment Scheme (EIS) provides investors in eligible early stage UK companies with generous tax-benefit benefits such ass 30% Income Tax Relief, Capital Gains Tax exemption and Inheritance Tax exemption.
Indeed, a Partner at Deepbridge Capital said there is ‘really is no-greater Government giveaway to investors’.
Deepbridge Capital manages £200m across their EIS Funds.
Investor Misconceptions
Andrew Aldridge, Partner at Deepbridge Capital, has highlighted investor misconceptions of the Enterprise Investment Scheme and why sophisticated and high net worth investors should consider the investments through the scheme for their portfolio.
“One of the potential misnomers is that EIS, and other tax efficient investments such as VCTs and Business Relief propositions, are only for the mega wealthy,” Aldridge said.
“With most EIS funds accepting investments as little as ten thousand pounds, there are opportunities for advisers to provide investors with tax-free growth away from pensions without having to commit unwieldy amounts – of course there are a myriad of other tax reliefs with EIS qualifying investments as well, not least 30% income tax relief, CGT deferral, inheritance tax exemption after just two years and loss relief in case everything does go wrong.”
Diversified Portfolio
Andrew Aldridge outlined a potential scenario for investors who choose to invest in a diversified portfolio of EIS companies over a five year period:
“Let’s take a client who invests £12,000 each year into EIS propositions for five years. If that provides them with diversification across approximately three companies each year, then after five years they will have amassed a private equity portfolio of fifteen growth-focused companies.”
“Such a portfolio would be minimally correlated to main market fluctuations and could also form part of wider inheritance tax planning. In fact, to be profitable this portfolio could require as few as four of the companies achieving reasonable growth. Any other successes in the portfolio are all profit and, importantly, tax-free growth (subject to EIS rules, such as assets being held for a minimum of three years).”
