As with any investment, if you participating in a share issue, make sure you are aware of the risks involved.
You need to be especially careful when looking at an EIS investment. There can be a significant risk to any capital invested. Investors should be very careful not to invest any money that they are unprepared to lose.
These investments are in small companies where the risk of the company failing can be high:
Many EIS offers include an exit strategy but of course, there are no guarantees. Of course, tax breaks offered to EIS investors are significant. As such, this reflects the real risk to capital over the course of an EIS investment.
For investors the main tax breaks of using the scheme are as follows:
Investors in EIS schemes need to appreciate the risks involved. However, the possibility of high returns has made the EIS a very popular scheme, especially for wealthy and savvy taxpayers. It is important to note that the tax reliefs are only available where there is sufficient liability against which to set it.
There are carry-back provisions that allow taxpayers to treat some or all of the cost of the shares to be carried back to the previous tax year. Under certain circumstances, small business owners can also benefit from the EIS rules to invest in their own businesses.
If a company no longer qualifies for EIS tax relief then investors will have to repay any tax relief they have received. There is also the risk that the EIS rules will change in the future, especially as Brexit continues to roll on but they should not be retrospective.
One way that some investors use to reduce their capital risk is to spread their investments using a professionally managed EIS fund.
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