An enterprising way to invest…

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Where to invest spare cash depends very much on your risk/reward profile – if you prefer to play it safe and are content with dependable but low returns, then the high street banks offer a multitude of ISA type vehicles; stocks and shares are a traditional investment option, but you need to choose your targets wisely, and with uncertainties like Brexit on the horizon, it’s a tough call to predict how the markets will fare in the future; property has always been the stalwart of investment portfolios, but bricks and mortar only yield good returns if you are in it for the long haul – or if you are prepared to run the buy-to-let route and the multitude of landlord obligations that it brings… So what other options are there? Well, small business is the lifeblood of the British economy yet it’s the sector that struggles the most when seeking investment to grow and prosper – hence the EIS scheme, introduced by the Government to incentivise private investment into high growth potential ventures, tempting investors with a cocktail of tantalising tax free goodies.

If that has whet your appetite, read on…

Enterprise Investment Scheme (EIS)

Introduced in 1993, Enterprise Investment Schemes (EIS) have for more than two decades been a crucial way for investors to help fund small UK businesses – indeed over 25,000 individual companies have received investment through the scheme since the launch of EIS into Britain. Investing in Enterprise Investment Schemes is encouraged by UK Government to raise funds for a greater number of small businesses, and this is reflected in the attractive rates of tax relief on offer. However, the nature of EIS – i.e. investing into small, often fledgling, companies – can mean that such propositions are accompanied by a larger exposure to risk. Rigorous due diligence is key to managing this risk. For sophisticated investors contemplating investment opportunities, Enterprise Investment Scheme (EIS) qualifying investments are appealing due to the many tax reliefs it offers. In a nutshell, if you invest £100k in an EIS scheme, and the company fails, you’ll be able to reclaim the value of your whole investment against your tax bill, as long as you paid that much tax in previous years. Invest £100k and the company takes off, and you could be looking at dividends, plus a tax free return if you divest of your shares after 3 years.

Seed Enterprise Investment Scheme (SEIS)

SEIS targets seed and start up companies for companies that are less than two years old for investments of up to £150,000, capping the maximum that can be invested in any tax year at £100,000. The investor benefits from all of the above tax breaks, with the exception that – as the scheme focuses on higher risk start-up investments – the initial relief is 50%.

For details of all the tax breaks available to investors for EIS and SEIS schemes, and to read our Case Study on Vermilion Digital Marketing’s SEIS scheme, see page 12 of our latest iNsight magazine.