Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.

Investing Capital

6 facts you might not know about EIS tax advantages

From 30% income tax relief to capital gains tax exemption and inheritance tax relief, the Enterprise Investment Scheme is renowned for the long list of EIS tax reliefs it offers individuals keen to invest in early stage companies. Consequently, in this piece I wanted to share six facts that you might not know about EIS tax advantages. 

1. There's indefinite capital gains deferral

As we start a new tax year, one important tax benefit offered when investing into EIS eligible companies is the Capital Gain Tax deferral.

For investors who have made a capital gain in the 2021/22 tax year, they are able to invest in an EIS eligible company and defer this gain until the shares are sold, taking advantage of the capital gains tax liability in that year. This allows investors to use the potential tax-free gain made from the investment to settle the tax liability while also benefiting from any changes in capital gains allowance changes.

Read more: Capital gains tax and the EIS: what you need to know as an investor

Importantly, the capital gains deferral is not limited based on where the capital gain liability arose, be it from property, sale of shares or even sale of fine art. Therefore when the liability becomes due again after disposing of the shares it is possible to reinvest once more and defer the liability a second time. This process can be repeated indefinitely, meaning the capital gains tax liability can be continually deferred by reinvesting the initial investment while benefiting from the capital gains exempt growth achieved from the EIS investments.

2. Any future losses can be offset against your income

In the case that these investments do not perform as hoped, the EIS allows you to offset this loss against your tax bill. This loss can be offset against either capital gains tax or income tax. Given the way this is calculated, it is most often used against income tax in the current or preceding year, but this loss can be carried forward to offset against future gains.

The loss is calculated as the net loss on the investment, so the investment is counted as the amount less any other reliefs claimed. The relief then given is at the rate of tax which is being set against - 28% for CGT, or the marginal rate for income tax (20% for basic rate, 40% for higher rate and 45% for additional rate taxpayers). This means that for an additional rate taxpayer the exposure can be as little as 38.5% if the investment value goes to zero.

3. All investments are IHT exempt

Many people invest to plan for the future, whether this is investing into a pension scheme for retirement or taking care of family into the future. One key aspect of this planning is regarding Inheritance Tax, and this is where EIS eligible shares can be very useful, marking a crucial difference between EIS investments and Venture Capital Trusts, the latter of which are not IHT exempt.

Read More: Inheritance tax and the EIS: what you need to know as an investor

Once the shares from an EIS investment have been held for two years, they can be passed onto future generations free of inheritance tax, making a potential saving of 40% on this holding. This is a far shorter time than the 7 year limit usually applied when making a gift, and even less than the 3 years you need to hold the EIS shares for to benefit from other reliefs.

4. Tax reliefs can be carried back

Given the time of year, many people are realising their tax liability for 2017/18 and are wishing they did more with their money in the year. Luckily, with EIS, the previous tax year is not set in stone.

For instance, the 30% income tax relief offered on EIS eligible shares can be used in the current tax year - but they can also be carried back and treated as if the investment had taken place in the previous year, reducing the tax liability for 2017/18.

Similarly, the capital gains deferral can be used on any capital gain liability that has arisen in the previous three years before the investment, meaning at present you can reach all the way back to the 2018/19 tax year and defer that tax liability.

The capital gains deferral can also be used on a future gain up to a year in the future, allowing you to plan ahead if you know you will be making an investment in the next year.

5. You can invest over £1m in a year

It is often the headline that you can invest up to £1 million in EIS investment opportunities every year, and this is usually the case. However, with recent changes, investment into knowledge intensive companies under the EIS allow an investor to invest up to £2 million in a single year, allowing £600,000 to be claimed back in income tax relief (provided enough tax has been paid in the year).

This is allowed as long as the additional £1 million invested goes to these companies that are spending on innovation or research and development, and importantly the initial £1 million can still be invested into any EIS eligible business.

This, along with the ability to treat the investment as if it happened a year earlier, means investors can theoretically reach a total of £3 million of investment and £900,000 of tax relief. This gives the investor the flexibility to invest and take their reliefs in the way that is most beneficial to themselves depending on their personal circumstances and liabilities.

6. EIS tax advantages are available to all UK taxpayers

In my opinion, the best thing about EIS tax advantages is that as long as you have paid income tax in the UK, you are able to claim them once you invest. The only condition on the amount that can be claimed is that you need to have paid sufficient tax in the year claimed to cover the amount of relief being provided (you can still invest more, but you will not be able to claim further relief).

Read More: EIS vs VCT: which is right for your investment portfolio?

Likewise, if you do not pay tax in the UK, you can still invest in EIS eligible companies, but you would not be able to claim any reliefs. However, depending on where you are investing from you may be limited by which platforms and vehicles you can invest through.

Investing under the EIS

With the EIS tax advantages particularly generous, it's no real surprise that the scheme has been growing in popularity since its inception in the 1993/94 tax year. Allowing you to back the next generation of British businesses, we're passionate about the scheme and really do believe it can be extremely beneficial for investors and entrepreneurs alike.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.