Enterprise investment scheme: anyone done this?

big_leon

Dear all,
I have £20k - which would otherwise be liable for CGT - that I would like to invest and I've heard about the enterprise investment scheme.

Has anyone got any experience with investing in this scheme? Who did you use to facilitate the investment?

Thanks!

Leon

Fiftyshades

I know someone who went for it, lots of paperwork he said, but a good option for some.

racing_blue

I looked very closely at this in 2010. Met with a company offering syndicate entry to various enterprise investment zones. They made a compelling case, except that the valuations quoted for the commercial properties involved seemed, to my way of thinking, very high. I came away thinking no.

In the end I paid a lump sum into a SIPP. This of course was about reducing income tax, and I appreciate that you are looking to reduce capital gains tax. Maybe a loss making investment is what you need after all!

lacristobal12

Fiftyshades wrote: »

I know someone who went for it, lots of paperwork he said, but a good option for some.

I would have to agree with you, fiftyshades. Everything will just be like that when you're starting up your investment.

I've had a related story way back 2003 which I turned down after couple of months of a roller-coaster ride with the kind telecommunication business which has filed bankruptcy eventually. It was such a terrible situation and too hard for me to get over.

I have done some mistakes that I dealt with the operations manager from the corporation and it was kind of a bogus.

Moreover, it's very similar system that the Philippines have. I'd say it's quite ideal and best way to get an Attorney's service prior to venturing in that kind of system.

Reaper

I have used EIS but prefer VCT (Venture Capital Trusts) as they tend to allow more diversification.

Your choice is currently a bit limited as they are not really "in season" at this time of year.

One that is available that I had been considering is the Downing Pub EIS, though on balance I am probably not going to invest, not least because the minimum investment £15k.
http://www.downing.co.uk/content/2/216/downing-pub-eis-fund-1.html

The risk they offer is lower than many others though it does not offer particularly large returns and cheats a bit (in my opinion) by including your tax relief in the quoted yields.

The main problems with EIS and VCT is the high risk and high charges, so do research it thoroughly and if you do decide to invest do go via a discount broker such as Hargreaves Landsdowne to at least reduce the up front charges.

Remember these are really only suitable for more sophisticated investors who can afford to lose the money.

Fiftyshades

racing_blue wrote: »

I looked very closely at this in 2010. Met with a company offering syndicate entry to various enterprise investment zones. They made a compelling case, except that the valuations quoted for the commercial properties involved seemed, to my way of thinking, very high. I came away thinking no.

In the end I paid a lump sum into a SIPP. This of course was about reducing income tax, and I appreciate that you are looking to reduce capital gains tax. Maybe a loss making investment is what you need after all!

I would imagine those valuations would be a lot less now.

gadgetmind

About the only one of these that appeals to me is SEIS as it fits in well with my business and innovation experience.

The caps make it a bit of a "friends and family" affair, but that's how I started.

racing_blue

Fiftyshades wrote: »

I would imagine those valuations would be a lot less now.

One example, over £100m for a large data centre in the north. That was for the build. The maintenance and service charges were unspecified. Leverage was involved to make the tax position more favourable. To me it felt way left of field without a skilled and trusted IFA doing some serious hand holding, and so I walked away.

Reaper I'd love to hear more about your selection of VCTs. Did you take advice or do your own research? What criteria did you use and what are the results like so far?

gadgetmind

racing_blue wrote: »

a skilled and trusted IFA doing some serious hand holding

Oxymorons abound, and then you even want said mythical beast to understand the basics of due diligence of a business investment.

Why not wish for Mary Poppins?

If you don't understand it, don't invest in it. An adviser with no skin in the game is no substitute for this understanding.

racing_blue

gadgetmind wrote: »

Oxymorons abound, and then you even want said mythical beast to understand the basics of due diligence of a business investment.

Why not wish for Mary Poppins?

If you don't understand it, don't invest in it. An adviser with no skin in the game is no substitute for this understanding.

Absolutely agree with you gadgetmind.

On the other hand, if Mary Poppins could show me, say, anonymised 5 year performance data for the last ten clients she had guided into the world of enterprise investment and venture capital schemes, I'd be all ears!

From memory (which may well be wrong), the maths for the EIS I looked at went something like:

investor has taxable income of £150k, wishes to reduce his tax liability from around £53K to zero.
puts in £30k, borrows another £145k from bank to invest £175k in the scheme
Claims 30% tax relief on the £175k investment = £53K and so (1)
pays no tax that year, (2) has £23k more cash and (3) has acquired a rather large and heavily leveraged investment... but with all the headache, interest, management charges, and risk to capital that implies.

gadgetmind

I would *never* use leverage for an investment like this!