EIS in small investments

ericonabike

I have some 'surplus' savings that I am looking to find a home for, and am looking at the 'crowdfunding' investments available through organisations such as Crowdcube. I'm well aware that this sort of investment carried no safeguards, but I am thinking of spreading £5k over around a dozen startups at £500 each. The real lure is the fact that they come under the EIS umbrella, which gives a relief of 30% on income tax, As my yearly income tax is some £1800, my thinking is that an investment at this level would wipe out my income tax bill. Or have I misunderstood? Any comments or suggestions welcomed.

Khrisjun

You have understood it correctly, if the business goes under you will also be eligible for loss relief.

Look out also for the SEIS investments as you get 50% relief on these.

Even so they are risky, i've invested in ~15 companies on Crowdcube at around £100-200 each and have just had the first notice come through to say the company is in administration. I tried to weigh it up as the 30%/50% was a great relief along with some small 'rewards' offered by the companies - The rest i need to forget about for a few years and hope a sale of IPO happens.

Cheers,
Khris

Khrisjun

Also, there is a reasonable amount of time taken for the companies to get the EIS certificates out to you, then another couple of months while HMRC process it - Just something to factor in

racing_blue

ericonabike wrote: »

I am thinking of spreading £5k over around a dozen startups at £500 each. Any comments or suggestions welcomed.

's gonna cost you £6k

or spread it over 10

But one question- how do you judge value here? Take Rentify, currently pitching on Crowdcube. They are seeking £1,000,000 in return for 4.76% of equity. Valuing the business at £21million. And appear to be well on the way to securing that million. But how do you judge that this is a viable business likely to be worth more than say £15 million at your exit point- which it will need to be if you are to break even, allowing for the tax relief.

I am interested in EIS investment and in VCTs because of the tax relief, but this is an area where I'd need my hand holding at present - an advisor - & so have held off so far despite looking closely

TheTracker

Khrisjun wrote: »

Also, there is a reasonable amount of time taken for the companies to get the EIS certificates out to you, then another couple of months while HMRC process it - Just something to factor in

To add to this, you can also use carry back for the previous year, which can effect when you buy.

And be careful as some investments are convertibles that are "EIS eligible" but not until able to be claimed until they are converted.

N1AK

racing_blue wrote: »

I am interested in EIS investment and in VCTs because of the tax relief, but this is an area where I'd need my hand holding at present - an advisor - & so have held off so far despite looking closely

I'm in a similar situation. I've really struggled to find advice from parties I'd consider unbiased about this, especially if you're not investing at a 40/45% rate payer where the tax relief on losses is a huge incentive.

ericonabike

Thanks folks. Appreciate the confirmation of my thinking. It's money I could afford to lose, but at 30% tax relief, if the company lasts for three years then I've more or less broken even, if it folds after that. I'm happy doing my own research, so have no wish to pay for an IFA to do it for me. Shall spend the next few weeks happily browsing and investing!

racing_blue

I'm not understanding how you will have broken even if the company folds? Say you invest £5000. You are tied in for 3 years, and any exit point beyond that is uncertain. If the company goes into administration at any time you lose the whole £5000, although you will have the small comfort of having recieved a £1500 tax credit in year 1.

The 30% tax relief applies to year in which you the initial investment. 50% for seed investment schemes.

It feels very high risk to me, although I see the sense in reducing the risk by spreading across 10 or 12 different companies. But... will you have the time to research each one properly? Some people will lose money here, for sure.

Thrugelmir

Invest in the Companies. Don't invest in tax relief.

TH1878

Thrugelmir wrote: »

Invest in the Companies. Don't invest in tax relief.

Thugelmir speaketh the truth. Don't let the taxation tail wag the investment dog.

Which is why accountants make awful friends.