EIS-Investing in Smaller Companies for Diverse Benefits
Introduced in 1993-94, EISs have seen £10.7 billion invested in more than 21,000 businesses as figures by HMRC indicate. Individuals like investing in worthwhile sectors that promise good returns. For instance, investing in small companies powering the United Kingdom economy is a wonderful idea and the returns potential is way up high, but also comes with some risk. However, the great news fresh and potential investors need to know is that anyone considering investing in new companies will enjoy great tax breaks from the government through Enterprise Investment Scheme (EIS).
The introduction of EIS over two decades ago was to encourage individuals to invest in unquoted yet small companies. The EIS system has valuable tax benefits inbuilt into it for compensating investors for the extra risk that comes with investing in a new small company.
What investing in an EIS comes with
With an EIS you could get up to 30 percent income tax relief for investing £1 million per tax year if you keep the shares for a minimum of 3 years. You also stand to gain a deferral of capital gains tax, including a tax-free growth and 100 percent inheritance tax relief after the lapse of 24 months as far as the shares are owned by the individual at the point of death. There is also a 45 percent maximum loss relief on any kind of holding that dips in value.
Always understand the risks involved
Right from the beginning it’s worth noting EIS investments benefits are great, but clearly in exchange for risks an investor is taking. There is a likelihood your capital could be lost and the investment value could fall or rise at any given moment. You must know sometimes the full invested amount might not be fully recovered. You are investing in new small companies whose value could fluctuate. On the flipside, you could reap maximum benefits and way higher than you anticipated from tax benefits and increase in value in the products or services of the small businesses invested in.
Do not forget tax treatment depends on personal circumstances and could change in future. The availability of tax reliefs is also hedged on portfolio companies ensuring the qualifying status has been maintained. Prior to making an investment you might want to seek and find as much independent financial counsel as you can.
While choosing an EIS provider in any market, verify and request information on the amount of money of EIS investments made. Understand the early-stage UK businesses being invested in and weigh in their potential long-term capital growth and how significant it can be. The companies can be listed or unquoted on the London Stock Exchange’s Alternative Investment Market.
Perhaps the huge benefit that comes with EIS is that it has always been supported by virtually every political party. Its success in helping a company at the early stages to grow is widely appreciated and recognised. This is one of the reasons why the success was supported by raising the income tax relief from 20% to 30% in 2012, including the introduction of SEIS (Seed Enterprise Investment Scheme).