EIS charges etc
Discussion
I have been researching EIS schemes - an area of the investment landscape that is new to me.
Close/determined questioning of a well-known provider has revealed an interesting charging structure that I thought I would share here.
Their website says: "Unlike traditional funds, we don’t charge investors any fees."
Their brochure says: "There are no fees for investors to pay. Each investee company pays -------- an arrangement fee at completion of the relevant investment and an ongoing monitoring fee thereafter."
The "arrangement fee" is typically 7%, paid up-front
The "monitoring fee" is 2% pa
There is also the possibility for introducing advisers to receive 3% up-front
So the statement "no fees for investors to pay" is at best technically correct, relying on a structure where the investee companies bear the costs. This of course reduces their value - and therefore the value of an investors holding - by the same amount. In many cases, 10% up front and 2% pa thereafter.
Of course the government gives you up to 30% tax relief up front as well. Over a 5-year period, the charging structure outlined means that 2/3rds (7% + 3% + 5x2% = 20%) of this tax relief will be "captured" by the provider and any introducers involved.
DYOR as they say. I decided not to proceed.
Close/determined questioning of a well-known provider has revealed an interesting charging structure that I thought I would share here.
Their website says: "Unlike traditional funds, we don’t charge investors any fees."
Their brochure says: "There are no fees for investors to pay. Each investee company pays -------- an arrangement fee at completion of the relevant investment and an ongoing monitoring fee thereafter."
The "arrangement fee" is typically 7%, paid up-front
The "monitoring fee" is 2% pa
There is also the possibility for introducing advisers to receive 3% up-front
So the statement "no fees for investors to pay" is at best technically correct, relying on a structure where the investee companies bear the costs. This of course reduces their value - and therefore the value of an investors holding - by the same amount. In many cases, 10% up front and 2% pa thereafter.
Of course the government gives you up to 30% tax relief up front as well. Over a 5-year period, the charging structure outlined means that 2/3rds (7% + 3% + 5x2% = 20%) of this tax relief will be "captured" by the provider and any introducers involved.
DYOR as they say. I decided not to proceed.
There are a set of fees for the Investee Company.
There are other fees due from the Investor. Typically 0.35% Dealing fees in AND out (£87.50 each way on a £25,000 investment) and £30 or so Admin fee pa.
The top tax rate for Dividends is 38.1% so an EIS allows a shareholder to extract surplus profits from a business at an effective rate of 8.1% tax.
Any gains in the EIS are generally free of Capital Gains Tax and IHT. Any losses can be offset against income tax in the year of loss.
There are other fees due from the Investor. Typically 0.35% Dealing fees in AND out (£87.50 each way on a £25,000 investment) and £30 or so Admin fee pa.
The top tax rate for Dividends is 38.1% so an EIS allows a shareholder to extract surplus profits from a business at an effective rate of 8.1% tax.
Any gains in the EIS are generally free of Capital Gains Tax and IHT. Any losses can be offset against income tax in the year of loss.
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