Eis

claire21

Does anyone here go for these with a fairy decent sum of money ?

Thanks

quirkydeptless

claire21 wrote: »

Does anyone here go for these with a fairy decent sum of money ?

Thanks

Ooh, I was wondering where to put my fairy money :grinheart

steampowered

I haven't yet, but intend to do in the near future.

EIS tax reliefs are extremely attractive for higher and top rate tax payers. Less so for basic rate tax payers.

That said there are some junk companies and funds out there, and investing in early stage companies doesn't come with the same sort of safeguards as blue chips.

I think you have to be careful where you put your EIS money, you have to do a bit more due diligence than on the larger markets where you can just put your money into a tracker and be confident you've made a good investing decision.

claire21

quirkydeptless wrote: »

Ooh, I was wondering where to put my fairy money :grinheart

😂 I’m not going to edit my post as I’m really wanting fairy money now !

Money_Grabber13579

steampowered wrote: »

I haven't yet, but intend to do in the near future.

EIS tax reliefs are extremely attractive for higher and top rate tax payers. Less so for basic rate tax payers.

That said there are some junk companies and funds out there, and investing in early stage companies doesn't come with the same sort of safeguards as blue chips.

I think you have to be careful where you put your EIS money, you have to do a bit more due diligence than on the larger markets where you can just put your money into a tracker and be confident you've made a good investing decision.

Is the value of EIS tax reliefs not the same to all tax payers? Is it not a 30% credit of the amount invested against your total tax liability and then gains potentially tax free?

Have to admit I don’t know very much about EIS but curious if my understanding is incorrect, because I might then look at them a bit more closely.

claire21

Money_Grabber13579 wrote: »

Is the value of EIS tax reliefs not the same to all tax payers? Is it not a 30% credit of the amount invested against your total tax liability and then gains potentially tax free?

Have to admit I don’t know very much about EIS but curious if my understanding is incorrect, because I might then look at them a bit more closely.

Yes

However loss relief would be at your marginal rate of income tax

Malthusian

Money_Grabber13579 wrote: »

Is the value of EIS tax reliefs not the same to all tax payers?

No, because not many people have the level of income required to claim EIS reliefs in full.

To make full use of every relief you need not just enough income in the year of your investment, but enough income in a relevant tax year to make use of loss relief. (And as claire21 points out, loss relief is at your marginal rate so you need to be a 45% taxpayer in the relevant year to get maximum benefit.) And a big CGT bill to use rollover relief. And a potential Inheritance Tax bill.

If any of those don't apply to you then you're taking the same risk for less reward than a richer person investing in the same EIS. As with pensions, it can still make sense, but people do tend to overestimate the benefits of EIS by not realising what they need to make full use of the reliefs.

Albermarle

From reading other info on the subject , an IFA would normally make sure their client had maximised all mainstream tax relief possibilities ( pension etc ) before looking at this kind of venture capital area.
I once looked into it just out of interest. There is quite a lot of paperwork involved and you have to rely on the company being invested in to follow certain rules and issue you with the right certificates etc

bowlhead99

Money_Grabber13579 wrote: »

Is the value of EIS tax reliefs not the same to all tax payers? Is it not a 30% credit of the amount invested against your total tax liability and then gains potentially tax free?

I'd agree with Malthusian that the value of the EIS scheme will vary from individual to individual, with wealthier and higher taxable income people having more relative benefit.

- value of ability to take tax-free dividends is greater to someone with more wealth or dividend income who has already utilised their ISA or pension allowances or their annual dividend allowance ;

- value of ability to take tax-free dividends is greater if you are a higher rate taxpayer as your tax saving is at a higher rate per pound invested (32.5% or 38.1% saved instead of 7.5%) ;

- value of ability to take tax free capital gains is greater to someone with more wealth or gains who has already utilised their annual CGT exemption ;

- value of ability to take tax free capital gains is greater if you are a higher rate taxpayer as your tax saving is at a higher rate per pound invested (20% saved instead of 7.5%) ;

- value of ability to take tax income tax relief on losses is greater if you are a higher rate taxpayer as your tax saving is at a higher rate per pound lost (40% or 45% instead of 20%) ;

- value of ability to defer or save capital gains using deferral relief is more valuable if you (a) actually have some taxable gains that would exceed the allowance and can be deferred into a year that perhaps doesn't exceed the allowance and (b) you would be on a higher CGT rate if you had not been able to defer, e.g. being a 20% CGT payer instead of 10% CGT payer ;

- value of 30% initial income tax relief is only useful if you actually pay more income tax than the relief available, e.g. someone on £27500 salary making a few hundred pounds of pension contributions will not haven enough income tax to get as much as 30% income tax relief on £10000 of EIS investment because they don't have a £3000 tax bill. Whereas someone on twice that salary can probably do a £25000 EIS investment at full 30% tax relief because they probably pay more than £7500 income tax ;

- value of business property relief for inheritance tax is higher for estates of people with a higher level of wealth (ie where the assets would have been wholly or partially in scope of IHT due to estate exceeding the threshold).

From the above, the potential benefits of EIS scheme are not entirely restricted to people in the higher tax brackets, and people will perhaps cite the 30% initial relief as the main thing they are looking for. But the people with bigger incomes are perhaps more likely to have higher general levels of wealth and investments and more likely to be able to make use of a greater value from the other incentives, including being able to take a loss against income tax.

If you are willing to use EIS without being able to take up the full range and % rate of benefits which the government is willing to put on the table to incentivise your investment, your thinking isn't necessarily flawed, but the risk/reward tradeoff for the deal is not as good as it could be for other investors - the most basic reliefs may not be enough to tip the risk/reward of the investment into being worthwhile, vs using other mainstream investments inside or outside other tax wrappers.

mostwelcome

Albermarle wrote: »

[…] There is quite a lot of paperwork involved and you have to rely on the company being invested in to follow certain rules and issue you with the right certificates etc

There's not usually too much paperwork in my experience, what are you thinking of?

The latter point about relying on the company being invested in, etc – true if you're investing directly. But if you have a decent sum to invest e.g. £15k+ many will go via EIS fund manager such as Parkwalk, Mercia, Downing, Calculus, etc. They and their lawyers look after that side of things.

Albermarle

”

There's not usually too much paperwork in my experience, what are you thinking of?

I was very indirectly involved in a kind of start up project and it was trying to raise money via EIS.
So just out of curiosity I researched EIS and it just seemed a bit complicated ( to me anyway) in terms of tax returns , certificates etc. Also I'm not in the 45% tax with CGT/dividend tax problems league.
I am sure for a more sophisticated investor with an accountant it would be no issue, or as you say you can delegate via a fund manager .