Bure Valley Group is an investment brokerage business which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
The enterprise investment scheme (EIS) offers a range of great benefits to investors. Indeed, here at Bure Valley Group we’re often amazed that EIS opportunities are not more widely known, or leveraged within more investors’ portfolios. After all, not only do many of these opportunities present significant return potential; they can offer great tax advantages as well.
In this article, our investment team will be sharing six great reasons to consider incorporating EIS opportunities within your portfolio in 2020. If you’d like to browse our EIS opportunities after reading this guide, then please see our portfolio page. For business owners seeking funding, you can reach us via:
+44 160 334 0827
#1 Exposure to new investment opportunities
EIS is a government scheme intended to encourage investment into innovative UK startups. In other words, EIS seeks to create new sectors, technologies and advancements in the British economy through exciting new businesses. For an investor, therefore, including different EIS opportunities in their portfolio is a great way to support and participate in these types of companies and projects, which might not be available in other types of equity funds.
Here at Bure Valley Group, for instance, at the time of writing Plastic Green Power is seeking to revolutionise the way we approach sustainability, by disposing of non-recycleable plastic waste through “viable, profitable, green, energy generating projects. Another exciting EIS opportunity is Cudo; a company with the fantastic idea to use the world’s “under-utilised computing capacity for commercial and charitable purposes”.
#2 Tax benefits
Of course, one of the best reasons to consider EIS opportunities is their ability to reduce an investor’s tax bill. In 2020-21, for instance, you can claim up to 30% of your EIS investment back through your income tax bill. So, if you invest £10,000 into EIS-qualifying companies within a tax year, you should be able to save £3,000 on your income tax bill.
You can also gain an exemption from capital gains tax (CGT) on profits from your EIS shares, if you hold them for at least three years. Any shares held for at least two years, moreover, gain an exemption from inheritance tax (IHT). You can also claim “loss relief” on your EIS investment if it fails, gaining back a percentage of your original investment equivalent to the highest rate of income tax which you pay.
Any experienced investor appreciates the importance of spreading out your investments across different asset classes, thus reducing over-exposure of your portfolio to any single investment. EIS can be another great way to increase your diversification, particularly since many EIS companies operate in relatively new, niche sectors which might not be as prominent in mainstream equity funds (e.g. cybersecurity and renewable energy). It is also possible for an investor to spread their EIS investments across multiple qualifying companies, either by investing individually in each one or by including one or more EIS funds within their portfolio.
Regardless of how you might include EIS opportunities within your portfolio, however, it’s a good idea to seek professional financial advice about your risk tolerance, investment goals and long-term strategy, to ensure your EIS investments sit appropriately within this wider investment mix. Remember, EIS investments typically represent a “higher-risk, higher-reward” type of investment, so it’s important to ensure that you carefully consider these opportunities before committing them to your portfolio.
#4 A great introduction
There are many different ways a person can begin their investment journey. Perhaps you begin by investing some money in a mutual fund, or real estate investment trust (REIT). EIS, however, is a fantastic way to begin investing companies due to the loss relief on offer. If you are a Higher Rate taxpayer, for instance, and want to start investing, then you stand to get 40% of your initial EIS investment back should it fail. So, if you put in just £100 towards an EIS opportunity, then you’d likely only lose £60 in the worst-case scenario. This is much better than potentially losing your entire investment on another stock market opportunity.
#5 Exit success stories
Companies in the artificial intelligence (AI) sector include Deepmind and Magic Pony, which provide “mega-exit success stories” for EIS investors. The former, for instance, is estimated to have raised $50m in funding and, at its third birthday, achieved a $500 million-plus exit to Google; clearly a huge financial win for investors. There are many such stories on the market with similar ventures and EIS companies, offering the potential for high returns.
#6 Support the economy
Much of the UK’s economic stability and growth rests on successful small businesses, and new companies in pioneering sectors which lead to direct investment and new jobs. By investing in EIS opportunities, which are often new companies with high-growth potential, therefore, you can directly make a positive impact on boosting the UK economy and job creation.
If you are a successful investor looking for EIS opportunities, or if you are a business owner looking for funding, then we’d love to hear from you. Get in touch today to start a conversation with our team, and discuss some of the great investment memorandums we have available:
+44 160 334 0827