Enterprise Investment Schemes (EISs)
EISs were introduced to incentivise investment in:
- Companies with growth potential that may struggle to raise capital
- Established companies that want to expand
The government's intention was to support enterprise and competition in the UK and to create viable and sustainable companies that provide employment and revenue.
By subscribing for new shares in an EIS company, current legislation states that investors may qualify for various tax reliefs. The potential incentives are income tax relief, capital gains tax deferral if investing a capital gain, capital gains tax exemption on gains within the EIS itself, capital loss relief (a loss suffered on disposal of EIS shares can be set against capital gains or income) and inheritance tax relief.
EISs can sometimes be difficult to sell and should therefore be considered only as long term investments, especially as they have to be held for a specified period in order to allow the various tax reliefs. Because of the risk associated with investing in small businesses and the funding of expansion, they are generally regarded as a higher risk investment and are therefore not suitable for everyone; however, the tax incentives are clearly an attractive proposition for the right person.
There are a number of EISs available today and it is therefore vital that you identify that which carries an acceptable level of risk and return for you and potentially will meet your objectives.
If you are interested in EISs, you may also want to familiarise yourself with Venture Capital Trusts (VCTs).
EISs are generally more complex and higher risk than other products and are therefore more suited to experienced investors, higher net worth individuals and those who simply have a greater appetite for risk. However, they can form an important and potentially rewarding part of a portfolio for the right individual. Correct and experienced advice is the key to this complex area of financial planning.
These products are not regulated by the Financial Services Authority or covered by the Financial Services Compensation Scheme.
In the event of a complaint, you will not have access to the Financial Ombudsman Service.
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