How to Invest in Enterprise Investment Scheme? – Investors Guide to EIS

Investors Guide to EIS

Table Of Content 

  • What is EIS?
  • What are the tax benefits of EIS?
  • EIS Investment Amount
  • EIS Returns
  • Conclusion

 

  1. What is EIS?

The Enterprise Investors Scheme (EIS) is a set of UK tax reliefs that were introduced in 1994, replacing the Business Expansion Scheme. The EIS is designed to encourage investment in small, unlisted companies that are carrying out a qualifying trade in the UK.

  1. What are the tax benefits of EIS?

EIS is a great way for your company to raise money and grow your business. It offers tax relief to individual investors who buy new shares in your company, which can amount to £5 million each year, and a maximum of £12 million in your company’s lifetime. This also includes amounts received from other venture capital schemes. In order to be eligible for EIS, your company must receive investment under a venture capital scheme within 7 years of its first commercial sale.

  1. EIS Investment Amount

Under EIS, you can raise up to £5 million each year, and a maximum of £12 million in your company’s lifetime. This also includes amounts received from other venture capital schemes.

  1. EIS Returns

You must follow the scheme rules so that your investors can claim and keep EIS tax reliefs relating to their shares. Tax reliefs will be withheld or withdrawn from your investors if you do not follow the rules for at least 3 years after the investment is made.

Invest in UK Businesses and Receive a Dividend: Investing in a private UK company through an Enterprise Investment Scheme (EIS) gives you the chance to take advantage of the following opportunities:

– You have the chance to realize loss relief and capital gains tax relief.

– You can benefit from tax-free dividends.

– You get to diversify your portfolio.

– You can invest in a company at its most critical stage of development – the start-up phase.

Company Website: www.newcapitallink.com

 

Conclusion:

The EIS offers a safety net for investors by limiting their potential losses, making it easier for them to take risks in order to potentially improve their wealth. The scheme also offers high growth and rewards, making it an attractive investment opportunity.

The purpose of this article is to provide a brief overview of the scheme, along with the basics of how it works, the criteria that you need to meet and the tax benefits that investors can receive.

If you would like more information about EIS or would like to discuss how it could work for your business,

please don’t hesitate to contact us anytime at +44 333 772 62 45

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds