I am often amazed at how many misconceptions there are floating around the Financial Services industry regarding EIS (Enterprise Investment Scheme) investment. For many advisors these myths have caused them to avoid EIS, marginalizing it, often in preference for VCTs. Fortunately, over the last few years, with the help of advocates, such as Martin Churchill and the EISA, many of these myths have been dispelled. I have listed below three of the most common that I have heard mentioned over the years along with my own comments on ‘the facts;’ behind the myths.
Myth 1:
The first common myth surrounding the EIS investment is that it only provides investment into a single company, often a pub or similar asset-backed investment, whereas VCTs provide a spread of investments across multiple companies.
The Facts…
You can make an EIS investment into a single qualifying company if you wish, however, there are a number of EIS Funds and Portfolio Services which offer diversified investment portfolios focusing on growth while offering income tax, IHT and CGT relief.
Myth 2:
VCT tax breaks and performance are much better than that of EIS Funds
The Facts…
VCT do offer a better rate of income tax relief at 30%, however, EIS offers CGT deferral and relief, which VCTs do not. Also the holding period of a VCT is longer, at 5 years, in comparison to 3 years with EIS. VCTs can be useful as they usually pay part of their return as tax free income dividend, something not associated with an EIS investment, but with the complete set of tax breaks plus the shorter holding period, alongside a portfolio of strong investments EIS Funds can more than hold their own.
Myth 3:
As a specialist investment EIS funds and services are few in numbers and difficult to access.
The Facts…
There are a reasonable number of EIS Funds available on the market, some specializing in specific sectors
If you have any questions about the EIS scheme or EIS Funds please call me on 020 7332 0320 or email jhickman@longbow.co.uk.
For further information on EIS tax benefits please click here.
