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.

investor looking at investment performance on laptop and phone
Tax Efficient Investing

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Tax on investment income: 4 ways to reduce the amount you pay

Investing wisely is not only about maximising returns, but also optimising tax efficiency. 

For sophisticated investors and high-net-worth individuals in the UK, understanding the intricacies of tax on investment income is crucial. 

From calculated asset allocation and tax planning processes to making use of tax efficient investment schemes (such as the Enterprise Investment Scheme [EIS]), a number of key strategies can assist with minimising tax on your investment income.


Understanding tax on investment income

Before considering the potential strategies to help minimise your tax bill, it is essential to fully understand the different taxes that may apply to your investment income in the UK. 

The three main types of taxes that can apply to investment income include:

  • Income tax: Income tax is levied on various types of investment income, including interest, dividends, rental income, and certain gains from investments. As with CGT, the rate of income tax is determined by your income tax band.
  • Dividend tax: Dividend income received from listed stocks and shares, for example, can be subject to dividend tax. The tax rates for dividends differ from those of other investment income and are categorised into different bands.
  • Capital gains tax (CGT): CGT is applicable when you sell or dispose of an asset, such as shares or property, and make a profit. The rate of CGT depends on your income tax band, with higher rates for higher and additional rate income taxpayers, as well as the type of asset on which the gain was made.

    Read More: Investor roadmap: capital gains tax allowance 2023/24 and beyond

Strategies to minimise tax on investment income

Some of the most popular ways to minimise the level of tax you are subject to pay on income from investments include making use of tax-efficient investment schemes, as well as some more fundamental steps, such as understanding how much (if any) tax-free allowance you are entitled to and seeking professional financial advice. 


1. Utilise tax efficient investment schemes

One of the most effective ways to minimise tax on investment income is to take advantage of tax-efficient investment schemes offered by the UK government. The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) each provide a range of generous tax incentives, from 50% income tax relief to the halving of an existing CGT bill through capital gains tax reinvestment relief, for investing in qualifying early-stage businesses. 

Alongside these tax incentives, the EIS and SEIS can also generate considerable financial returns and contribute to the growth of innovative British SMEs.


2. Consider Innovative Finance ISAs

Innovative Finance ISAs (IFISAs) offer tax-free returns on peer-to-peer lending and other types of alternative finance investments. 

By utilising an IFISA, you can shield your investment income from income tax and CGT. However, it must be noted that this type of ISA differs from Lifetime ISAs and Cash ISAs, in that the level of risk associated with the investment is much greater with IFISAs. This is an investment vehicle as opposed to a savings account. 


3. Asset allocation and tax planning

Strategic asset allocation can help to minimise tax liabilities. By aligning your investments across various tax wrappers, such as ISAs and pensions, you can optimise tax efficiency. Additionally, understanding the extent of annual tax allowances which you are eligible to receive can be highly important.

For example, most UK taxpayers can receive the £12,570 annual income tax exemption, in addition to the £6,000 annual capital gains tax free allowance and £1,000 annual dividend tax allowance. These tax exemptions can each help to reduce the amount of tax you are ultimately subject to pay. Furthermore, it is important to offset any losses you have incurred within the same tax year against your capital gains, for example, as this can help to reduce your overall tax liability.


4. Seek professional advice

Tax planning can be complex, and regulations set by HMRC are subject to change. Engaging the services of a qualified tax advisor or financial planner can provide invaluable guidance tailored to your individual circumstances. 

This can help with navigating the intricate landscape of tax on investment income and ensuring compliance with the latest regulations while maximising tax efficiency.


The importance of tax efficient investments

Minimising tax on investment income is an essential aspect of wealth management for sophisticated investors and high-net-worth individuals in the UK. This is a particularly important concern as the combined effect of frozen and reduced thresholds enforced in the 2023/24 financial year will see 2.5 million more taxpayers brought into the higher and additional rates of income tax by 2027/28 – one among many of the tax-raising drives introduced earlier this year

By understanding the different taxes that may apply and implementing key strategies, such as utilising tax efficient investment schemes, considering Innovative Finance ISAs, strategic asset allocation, and seeking professional advice, you can optimise your overall financial position. 

It is important to stay informed, review your investment strategies regularly, and adapt to any regulatory changes to ensure continued tax efficiency in your investment endeavours.

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