Auto Enrolment

Work place pensions

Check to see if
this affects YOU

Pension
Calculator

How much do you need to put into a pension?

Do some sums!

Enterprise Investment Scheme (EIS)

Invest in high risk companies tax efficiently

Investing in small, unquoted companies is extremely risky. The government recognises that this can make it very difficult for such companies to raise external funds. If you have filled your annual ISA and pension investment allowance and still have funds you wish to invest an EIS maybe be suitable.

You have a couple of options open to you. You can either,

• Invest via an EIS based fund

  These funds are normally managed by venture capitalist managers. The managers will decide on your behalf which companies to invest in and focus on growth and capital preservation of the fund.

• Invest directly

  You can invest directly into small unquoted companies. Any company will have to be HMRC approved for you to benefit from the tax advantages enjoyed by an approved EIS investment.

As you would expect there are annual limits set by HMRC as to how mush you can invest in each company and how much you can invest overall. These limits will also include any investment made into venture capital trusts.

Tax advantages

As an EIS invester you can enjoy considerable tax advantages.

• Income tax

  Any investment you make upto the annual limit set by HMRC will attract income tax relief. Any dividends received as a result of the investment will not be subject to income tax.

• Capital gains tax

  If you hold the investment for the qualifying period set by HMRC any subsequent sale that records a capital gain will be exempt from capital gains tax. Moreover, any capital gains tax liability triggered may be deferred - only crystallising once you sell your EIS investment.

  If you experience a loss on disposal this can be set against income for the year or even the previous year.

Considerations

• Qualifying period

  The investment holding qualifying period, set by HMRC, to benefit from any possible capital gains tax exemption on disposal normally run into years. Moreover, any EIS investment is non transferrable. So once you have committed to the investment you must expect to hold it for a considerable period of time to benefit.

• Disposal

  Once you have held the investment for the investment holding qualifying period and decide to dispose of it you must be prepared to wait for a buyer. EIS investments can prove to be very illiquid.

• Risk of loss

  EIS investments are small companies without, invariably, track records. They are extremely risky investments and the risk of complete loss is high. Any monies you choose to invest must be amounts you are prepared and able to lose.

The rules for such an investment, both for the company to be invested in and the individual making the investment, are very complex and must be understood before such an investment is made. We are happy to bear the cost of your initial consultation giving you the chance to ask us questions on these high risk investments.