6 things to know about EIS in 2021

Bure Valley Group is an investment introducer platform 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 vast majority of the UK’s 5.9m businesses are small to medium sized enterprises (SMEs), employing 3/5 workers in the private sector – and comprising over 50% of the turnover. Small businesses are also the area where exceptional, accelerated growth potential can be found by early-stage investors. Here, there are also powerful tax-efficient schemes available for use such as the Enterprise Investment Scheme (EIS), which includes loss relief and income tax relief.

This scheme has been around for some time now, but continues to play a vital role in the UK economy and in many investors’ portfolios. Below, our team at Bure Valley Group offers this round-up of six key things to know about EIS in 2021. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:

+44 160 334 0827

 [email protected]

 

#1 Amazing tax reliefs

There has been concern amongst many investors that, since COVID-19, the UK government may reduce some of the generous tax reliefs available under EIS to try and balance the books. Yet this has not transpired. In 2021, EIS still offers some of the best tax reliefs available in the wider landscape of tax-efficient investment options, including:

  • Income tax relief of up to 30%.
  • Capital gains tax (CGT) deferral.
  • Loss relief if your EIS investment fails.
  • Exemption from inheritance tax (IHT) if EIS shares are held for at least 2 years.
  • CGT exemption on EIS shares held for at least 3 years.

 

#2 Direct and fund-based options

Angel investors and similar individuals (e.g. those with an appetite for higher risk and sufficient capital to invest) are often attracted to the idea of investing directly in specific EIS-qualifying companies, which have passed due diligence checks and which show high-growth potential. Another option, of course, is to invest in an EIS fund where a fund manager builds a portfolio on your behalf. This does come at a price however, and you may find it easier to diversify your own set of direct EIS investments.

 

#3 Visibility and control

One advantage to investing directly in EIS-qualifying companies is that you can choose which individual companies look most viable and promising. A fund, whilst offering a degree of built-in diversification, can make it harder for an investor to “look under the hood” of each individual EIS company making up the fund. Here at Bure Valley Group, we offer an exclusive network of many promising EIS companies which have been pre-vetted, and which are open to investor scrutiny. They also hail from a range of sectors and business models, giving each investor lots of scope to build a portfolio around their investment goals and interests.

 

#4 Diversity of businesses

The great thing about the EIS rules is that they open up entry and qualification to many different company types, from a wide range of industries, sectors and backgrounds. To gain EIS status, a business must meet at least the following criteria:

  • Be no older than 7 years since its initial registration.
  • Not hold gross assets exceeding £15m.
  • Cannot be listed on a stock exchange (e.g. the LSE). It must be unquoted.
  • Employees must be no more than 250 in total.

 

#5 A COVID-19 recovery role

With the pandemic devastating so many lives and much of the UK economy since 2020, the EIS scheme will arguably be more important than ever in helping get everyone back on their feet. In particular, successful and growing startup businesses play a vital role in growing new jobs – vital for households across the country. These new jobs then provide additional tax revenue streams for the UK government, which can then be committed to public services and COVID recovery. A very important EIS sector amidst all of this is tech, where new sectors such as medtech, fintech and others are emerging to offer fresh solutions to pressing national problems. The government seems to recognise this and has launched a review to boost the UK’s fintech sector in particular. 

 

#6 More investment options

EIS opportunities are fantastic for wealthier, sophisticated investors who can tie up some of their capital for a longer period of time, who are excited by early-stage companies and who are able to stomach the investment risk involved. EIS can be especially compelling for those with a large income tax bill which they want to mitigate. You may also be interested if you are facing a big IHT bill, if your pension contributions are restricted and/or you are approaching your pension lifetime allowance. Those who have recently sold a business, property or shares and want to defer paying CGT on the gain(s) can also find a place for EIS investing in their portfolio. There is also the potential to benefit from the EIS scheme’s “carry back” rules

 

Conclusion & invitation

Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:

+44 160 334 0827

 [email protected]