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SHARES
A means of investing in the shares of businesses not listed by the Stock Exchange and obtaining tax relief at 20% (plus possibly up to 40% capital gains tax deferral) on the money you invest. Your money buys new unquoted or AIM shares in companies which are usually recently formed and don't have to meet the conditions for those traded on the Stock Exchange. Only a few shares may be available to the public; the rest are kept by the people who run the company. You should choose individual shares in at least 7 to 10 companies to spread your risk. Your money is tied up for at least 3 years (for shares subscribed before 6 April 2000, the minimum period is 5 years).
Who can invest Anyone 18 or over not 'connected' with the businesses invested in by the fund.
How worthwhile There is a high chance of failure. The 20% income tax relief is probably insufficient to make this scheme attractive to most people. Consider instead Shares Venture Capital Trust which may be less risky. If you have made large capital gains, the scheme is much more appealing as in effect you get 60% tax relief.
Minimum £14,000-£20,000 for a portfolio of EIS shares bought for say £2,000 each in 7-10 companies. Lower amounts much riskier because of the lack of a diversified portfolio.
Maximum £200,000 for all investments each tax year for shares issued after 5 April 2004. You can invest more but the balance will only get capital gains tax relief, see tax below.
Suitable Lump sums.
Money back You should be able to sell the shares after you have held them for 3 years or more; if you invest in a fund there may be a delay after you have invested but before the shares are bought of about 6 months.
Interest None. By the time the shares start to pay dividends, you will normally want to sell. You hope to make a capital gain by selling for more than you paid.
Tax You get income tax relief on your investment at 20% on investments of up to £200,000 per person in all schemes in each tax year. Up to £25,000 can be allowed against the previous year's income tax bill if investment is made by September 30. If you have made a taxable capital gain on anything else up to three years before (and up to one year after) your Enterprise Investment Scheme investment, you can defer the gains tax on it if you invest the amount of the taxable gain (there is no £200,000 maximum in this case) in an Enterprise Investment Scheme. This can raise your tax relief to a maximum of 20% plus 40% equals 60%. When you sell the shares after 3 years, you are exempt from capital gains tax if you make a gain on the Enterprise Investment Scheme but any gain you deferred has to have tax paid on it at the then rate. However the gain could eventually be reduced further by capital gains tax taper relief as the disposal date of the original asset will be counted as the disposal date of the Enterprise Investment Scheme. If you make a loss, the loss can be set against either income tax or capital gains tax (e.g. the deferred gain) unless your Enterprise Investment Scheme relief is withdrawn.
Fees to pay The launch costs are equivalent to an initial fee of 3% to 7%.
Passbook None. Share certificate.
Children Unsuitable.
Risk Very high. Some shares usually go bust. It is hoped that the rest more than make up for this. As there is no trustee to look after your money, only invest in a scheme sponsored by an established financial body. You may be unable to sell the shares when you want.
How to invest Get advice from a magazine, newspaper, stockbroker or independent financial adviser on which Trust to choose. The Tax Shelter Report analyses new offers.
Where from The Enterprise Investment Association will send you a list of members.
Other types of direct investment
in shares
How Best to Invest in Stocks and
Shares
Investment trusts
Unit trusts
Offshore funds
Contents
Last updated 19 April 2004