“It is important to assess the level of risk and the potential returns of an EIS,” explains John Glencross chief executive at Calculas
Capital.
“Unlike single company EIS, which is just one company and is generally regarded as a high-risk strategy, an EIS fund is spread across a number of EIS investments.”
There are two forms of EIS funds available to the retail investor – approved and unapproved, the main difference of which relates to when the tax relief can be claimed.
According to HMRC, an investor in an approved fund can claim the tax reliefs when the investment is made, whereas with an unapproved fund the reliefs are available from when the fund invests into an investee company.
In spite of the generous tax reliefs that the EIS offers, however, advisers and their clients should not invest in a fund of this nature solely based on this aspect. It is important that the potential returns from the investment are also seriously considered.
It is all well and good to have a portion of wealth that is exempt from IHT, it is not great if that wealth is significantly eroded because of a bad investment decision.
Jenny Lowe is features editor at Investment Adviser
