FAQ

When was the Enterprise Investment Scheme launched?

The EIS was introduced by the UK Government in 1994 to help small UK companies raise capital from private investment.

How risky are EIS funds?

As with any investment, buying shares in EIS is not without risk. EIS are typically seen as high risk investments and should not be entered into without careful consideration and advice from your professional adviser.

Each EIS product will have its own risks based on its specific underlying investments but the main risks associated with all EIS are:

  • EIS shares will be illiquid. They are issued by small companies and not listed on recognised exchanges, meaning that there is no secondary market
  • Investors must be willing to lock up their capital for at least three years. This is the minimum period that EIS shares must be held in order to benefit from certain tax reliefs
  • There is the risk that the companies issuing the EIS shares can fail or make significant losses, as smaller companies typically have a higher failure rate than larger, more established companies. In this case the losses to investors could be significant even after tax relief is taken into consideration
  • The companies could fail to meet or maintain the EIS qualifying requirements, rendering any tax relief to the investor invalid

Are EIS portfolios the same as VCTs?

EIS and VCT are similar in the way that they both use private equity funding to raise investments for small unquoted companies but there are some differences. For example:

  • VCTs offer tax free dividends but an EIS does not, so will normally just invest income straight back into the business
  • The minimum holding period for VCT is five years and for EIS is three years
  • The maximum investment for VCT is £200,000 but for EIS is £1,000,000

Is EIS investing a new concept?

EIS investing is not a new concept but market awareness of such products is still building.

This year the UK Government raised the amount that individuals can invest in an EIS and also increased the levels of tax relief. This has in turn raised the amount of finance that companies can raise through an EIS. In addition, they also widened the criteria that companies must meet to qualify for EIS investing so the types of companies now raising finance are more mature than in previous years.

As traditional investments continue to deliver volatile returns, the expectation is that more investors will look at EIS investments to diversify their portfolios and increase potential returns.

Are EIS portfolios suitable for any investor?

No, they are aimed at experienced investors.

They should never be used as a sole investment in a portfolio but rather as a satellite or supplement investment to gain alternative investment exposure as part of a wider portfolio.

EIS products are ideal for investors that have been impacted by the recent reductions in the annual and lifetime pension allowances.

Can I withdraw my money from an EIS portfolio at any time?

As the minimum investment term is three years from investment, you are unable to withdraw your money before this time. It’s important that the minimum holding period for any EIS investment is confirmed in advance of any investment decision being made as these can vary and your funds could be tied up for many years. It is also worth noting that the three year minimum holding period only starts from the point that the portfolios subscribes to new shares in each investee company.

You can only exit from an EIS when the investee companies are sold, liquidated or listed. The EIS manager will work with the investee companies to pursue an exit strategy that is beneficial to both the company and its investors.

At any time up until the point when a fund manager subscribes for shares in an investee company, you can withdraw your money.

Can I make regular savings in an EIS?

Kuber Ventures offers a facility that allows you to save through monthly contributions. It should, however, be noted that the EIS managers will not invest your contributions until a minimum of £2,000 has been reached for each selected portfolio.

What tax benefits do EIS portfolios offer?

The Enterprise Investment Scheme (EIS) has been designed by the Government to encourage private investment into small high risk trading companies by offering a range of tax incentives.

Providing the underlying investments made by the EIS are held for at least three years (for Income Tax relief and tax free growth), the current tax reliefs available are:

  • 30% upfront income tax relief up to maximum investment of £1 million, which can be carried back to the previous tax year
  • 100% inheritance tax relief (provided the investments are held at time of death)
  • Capital Gains tax deferral for the life of the investment
  • Tax-free growth
  • Tax relief from investment losses

How do I claim tax relief from EIS investments?

Each of your selected EIS fund managers will supply you with an EIS3 certificate. These certificates should then be used to complete your tax returns and display the maximum amount of capital gains or income tax relief that can be claimed.

How does EIS investing work?

An EIS can be a single company investment or a ‘fund’ or discretionary management service investing in multiple companies.

Kuber Ventures is structured as a discretionary managed account.

The EIS manager will accumulate investors funds until the investee companies are ready to accept these investments and issue new shares. These shares are allocated to each investor on a pro-rata basis dependant on the size of their investment.

What criteria do companies need to meet to qualify for EIS funding?

Only unlisted companies that have a gross asset value of less than £15 million immediately before the issue of EIS shares or £16 million after the issue of EIS shares will qualify, and must not invest in ‘non-qualifying’ trades.

The definition of a ‘non-qualifying’ trade refers to the primary market area in which the company operates. Activities that are excluded include most dealing operations, banking, leasing, legal services, accounting services, farming, forestry, property developments, hotels and nursing homes.

Is EIS a form of tax avoidance?

EIS is a Government backed scheme that offers tax relief to compensate investors for the risk associated with an investment in a small unquoted company. These companies find it hard to raise the finance necessary to grow their businesses from other sources and the government seeks to encourage their expansion to help boost the economy. The Government has been vocal in its support of EIS as the acceptable face of tax planning.