Investing in SEIS and VCT’s?
Discussion
you would be investing in very early stage, often pre revenue company startups. the businesses have to be under 2 years old, under 25 employees, under 2m of net assets and be an allowable business (HMRC has a list somewhere)
SEIS is a very very tax efficient way of investing money, you can offset 50% against current year tax, whilst all gains are tax free.
however, many of your investments will be total failures and you'll lose all your money. a few will be ok, if you're lucky a couple of the businesses will go absolutely nuts and earn you a fortune, and you will pay no or ittle tax.
they're a good investment if you are prepared to gamble and happy with the risk. i have about 1% of my portfolio in SEIS and Bit more in EIS. I've basically written off those investments, but if I'm lucky they could grow 100x......
SEIS is a very very tax efficient way of investing money, you can offset 50% against current year tax, whilst all gains are tax free.
however, many of your investments will be total failures and you'll lose all your money. a few will be ok, if you're lucky a couple of the businesses will go absolutely nuts and earn you a fortune, and you will pay no or ittle tax.
they're a good investment if you are prepared to gamble and happy with the risk. i have about 1% of my portfolio in SEIS and Bit more in EIS. I've basically written off those investments, but if I'm lucky they could grow 100x......
anonymous said:
[redacted]
Realistici upside? its a punt. THe upsides theoretically are huge- imagine you had invested using SEIS in Facebook or Tesla- £100 in faceboook as a first investor would be worth hundreds of thousands now i would have thought.
Regarding SEIS (or just plain old EIS) I would say the worst case scenario is not that the company folds and you lose all your money, actually it's that the company underperforms but stays going.
The tax breaks for SEIS/EIS are in two parts: 1) when you first invest and 2) when the investment finishes and this could be either you sell out and make a tax free profit or it folds/sells at below cost and you get another tax break for this loss. If the company stays going as a 'zombie' that is perhaps supporting the entrepreneur but not paying you any dividend then you don't get to utilise that second tax break but your capital remains tied up. I have one EIS investment I did in 2007 that is still going like that and I just wish they'd put the thing under so I could get another tax break but they don't as it's managing to support a few key personnel.
Regarding VCTs, theoretically it's less risk because they are investing in more established companies. You get 30% back when you invest (assuming higher rate tax payer with tax already paid that is greater than the 30% in nominal terms) and all dividends are tax free. The problem is trying to sell them with some trading as much as 20% below NAV ... if you can get the company to do it! More recent ones have better buyback policies but it's an important point to check. Unlike EIS, your returns are more likely to be modest but you also have less chance of losing everything. I have funds with Mobeus for many years that have been doing really well, Foresight, on the other hand, have been very poor - luck of the draw I guess. Any losses can be used to offset CGT.
I hope this helps.
The tax breaks for SEIS/EIS are in two parts: 1) when you first invest and 2) when the investment finishes and this could be either you sell out and make a tax free profit or it folds/sells at below cost and you get another tax break for this loss. If the company stays going as a 'zombie' that is perhaps supporting the entrepreneur but not paying you any dividend then you don't get to utilise that second tax break but your capital remains tied up. I have one EIS investment I did in 2007 that is still going like that and I just wish they'd put the thing under so I could get another tax break but they don't as it's managing to support a few key personnel.
Regarding VCTs, theoretically it's less risk because they are investing in more established companies. You get 30% back when you invest (assuming higher rate tax payer with tax already paid that is greater than the 30% in nominal terms) and all dividends are tax free. The problem is trying to sell them with some trading as much as 20% below NAV ... if you can get the company to do it! More recent ones have better buyback policies but it's an important point to check. Unlike EIS, your returns are more likely to be modest but you also have less chance of losing everything. I have funds with Mobeus for many years that have been doing really well, Foresight, on the other hand, have been very poor - luck of the draw I guess. Any losses can be used to offset CGT.
I hope this helps.
OP I've had a lot, both EIS and SEIS. As above they are a punt, whenever I invest in any of them I mentally write them down to zero. I know i'm risking about a third of the headline amount if all goes wrong but the key points have been outlined above.
Zombie companies are a pain. You know you will never get a proper return but you can't even shut them and get the tax break back.
Overvaluing. EIS eligible start ups know you are getting a tax break and so often companies pre-revenue are overvalued for what is little more than an idea and no proof of concept yet.
You aren't getting the next Facebook. Apart from the fact that it is a 1 in 1 billion shot what actually happens is when a big VC i or PE company come in thhey want all the minnow investors out. Often by getting in at EIS stage you have good voting rights (I remember one company gave had in early terms that decisions had to be unanimous for founder investors - that proved to be very beneficial!) so the big firms want early investors out so they don't have to deal with all the effort of them. Needing 30 signatures to close a funding round is not worth the effort vs buying them out. So realistically if you get 50 times you are doing amazingly and I've never got that yet.
To put it in context I have invested in a company at £1m which sold for £100m and after the dilution of further funding rounds I got back 13.5 times with zero tax. But that is not the norm.
To be honest I am surprised they are suggesting EIS or SEIS because they are so hit and miss. I have used EIS funds to try and smooth my risk and returns. My IFA would not recommend them to 99% of people as most people are not comfortable with accepting losses. VCTs are better and more stable as some of them have very mature companies.
Honestly OP SJP are crap, if you want some advice my IFA is great and I'd be happy to pass on details.
Zombie companies are a pain. You know you will never get a proper return but you can't even shut them and get the tax break back.
Overvaluing. EIS eligible start ups know you are getting a tax break and so often companies pre-revenue are overvalued for what is little more than an idea and no proof of concept yet.
You aren't getting the next Facebook. Apart from the fact that it is a 1 in 1 billion shot what actually happens is when a big VC i or PE company come in thhey want all the minnow investors out. Often by getting in at EIS stage you have good voting rights (I remember one company gave had in early terms that decisions had to be unanimous for founder investors - that proved to be very beneficial!) so the big firms want early investors out so they don't have to deal with all the effort of them. Needing 30 signatures to close a funding round is not worth the effort vs buying them out. So realistically if you get 50 times you are doing amazingly and I've never got that yet.
To put it in context I have invested in a company at £1m which sold for £100m and after the dilution of further funding rounds I got back 13.5 times with zero tax. But that is not the norm.
To be honest I am surprised they are suggesting EIS or SEIS because they are so hit and miss. I have used EIS funds to try and smooth my risk and returns. My IFA would not recommend them to 99% of people as most people are not comfortable with accepting losses. VCTs are better and more stable as some of them have very mature companies.
Honestly OP SJP are crap, if you want some advice my IFA is great and I'd be happy to pass on details.
OP, not sure EIS ( Enterprise etc ) v SEIS ( Seed...) differentials and every aspect of some of the other replies are necessarily 100% correct.
Whether VCT or EIS top maximum allowable back in IR is 30% and has been for some years.
Losses can be offset against either CGT or income Tax if EIS - VCT not as easily.
Big difference between SEIS and EIS entities - usually former being extremely fledgling.
Film finance entities can be held within EIS but as with every investment look at the underlying company and dont be beguiled by the Income tax relief - all that does is reduces your investment but you've still got 70% invested.
I wouldn't personally just do one entity but have a bouquet on the basis some will 100% collapse completely - they dont just keep going and 100% of your investment is reduced to 0 prior to any loss relief.
They can be very useful if you have sold other shares in other companies from the perspective of reducing CGT gains.
You dont have to use the likes of SJP who in effect only then act as introducer although that might make it easier if you want a number of different companies.Not sure its them that are "crap " but said underlying company that specialises in EIS investment such as Octopus / MMC / Parkway / oxford etal.
Fwiw and ignoring uplift on portfolio v companies no longer trading you should also expect annual percentage payouts in dividends etc.
All imho and not advice but how I've approached it but definitely should only be a small percentage of your overall portfolio.
Whether VCT or EIS top maximum allowable back in IR is 30% and has been for some years.
Losses can be offset against either CGT or income Tax if EIS - VCT not as easily.
Big difference between SEIS and EIS entities - usually former being extremely fledgling.
Film finance entities can be held within EIS but as with every investment look at the underlying company and dont be beguiled by the Income tax relief - all that does is reduces your investment but you've still got 70% invested.
I wouldn't personally just do one entity but have a bouquet on the basis some will 100% collapse completely - they dont just keep going and 100% of your investment is reduced to 0 prior to any loss relief.
They can be very useful if you have sold other shares in other companies from the perspective of reducing CGT gains.
You dont have to use the likes of SJP who in effect only then act as introducer although that might make it easier if you want a number of different companies.Not sure its them that are "crap " but said underlying company that specialises in EIS investment such as Octopus / MMC / Parkway / oxford etal.
Fwiw and ignoring uplift on portfolio v companies no longer trading you should also expect annual percentage payouts in dividends etc.
All imho and not advice but how I've approached it but definitely should only be a small percentage of your overall portfolio.
Gassing Station | Finance | Top of Page | What's New | My Stuff