Risks & Commitments

Enterprise Investment Scheme (EIS)

Enterprise Investment Schemes are considered to be long term investments designed primarily for investors who understand the higher risks which they may carry and have the capacity to sustain any losses. You should read the product brochure and prospectus to ensure that you fully understand these products but ultimately it is your decision, and responsibility, if you chose to proceed.

An Enterprise Investment Scheme, EIS, is a tax efficient scheme for investing in small businesses. It's in the government's interest for small businesses to succeed, but companies often find it difficult raising capital. Banks won't lend and most institutional investors need to invest larger amounts of money often leaving the private investor (or business angel) as the only option. To encourage private investors, the government introduced generous tax incentives in exchange for locking investors in for a minimum of 3 years, although in practice the investment time horizon is much longer. The longer the timescale, the more risk there is to the capital due to inflation.

An EIS can be as simple as a single company investment or it could be a managed service or EIS fund offered by an investment manager (often a venture capitalist). However the investment is made, it is ultimately an investment into one (or a number) of small unquoted businesses.

Neither single company EIS or managed EIS services are traded on a stock exchange so withdrawing cash can be difficult or, at times impossible - therefore EIS should only be considered by long term investors. An investor's capital is often only returned when the underlying investment is sold. EIS are at the top end of the risk scale and are only suitable for wealthy investors who can afford to lock money away for the long term.

Relief is potentially available from income tax, capital gains tax and inheritance tax, but these rules can change. In the event that the company does not comply with the rules throughout the qualifying period, HMRC may withdraw and reclaim any tax relief which has been given. As with any investment, never let the tax tail wag the investment dog. Just because the tax breaks are exciting, always ensure the full risks and potential rewards of an investment are understood.

Please remember, EIS are higher risk investments and should only be a consideration for those who can afford to take the risk, their value will fall as well as rise. They are primarily intended for investors who are prepared to take risk with their capital. You should hold them for the long term, but you could still get back less than you invested. Please remember, the value of tax savings will depend on your circumstances and tax rules can change over time.

New FCA promotion rules to affect EIS, crowdfunding and other "non-readily reaslisable securities"

Due to recent FCA rules, direct offer financial promotion of unlisted shares or debt securities by firms is limited to one or more of the following types of retail client:

  • Those who are self certified or self certify as 'Sophisticated investors'. Those who are certified as 'High Net Worth investors'.
  • Those who confirm that, in relation to the investment promoted, they will receive regulated investment  advice or investment management services from an authorised person (i.e. clients will have to engage with financial advisers).
  • Those 'Retail investors' who certify that they will not invest more than 10% of their net investment portfolio in unlisted shares or unlisted debt securities (excluding their primary residence, pensions and life cover). Where advice is not provided, firms must conduct an appropriateness test before selling clients promotions for unlisted equity or debt securities.

Therefore a client MUST meet one of the above types to be allowed to download any information on any EIS investment on the WealthMe website. Where advice is not provided, WealthMe is required by the FCA Rules to obtain sufficent information from you to determine whether your investment is suitable for you. A client must complete an appropriateness test questionnaire which is attached on all application forms. WealthMe reserves the right not to accept your application if you have not received advice from an adviser who is suitably qualified and authorised or if you do not pass our 'Appropriateness Questions', we will return your application form to you.

Key risk of an EIS

  • Deemed by the FCA as a higher risk investment.
  • Locks investors in for a minimum of 3 years.
  • EIS are usually long-term investments (5-10 years).
  • Risk is to the capital due to inflation.
  • Investment into one (or a number) of small unquoted businesses.
  • Returns are not guaranteed.
  • Capital is often only returned when the underlying investment is sold.
  • Value of tax savings will depend on your circumstances and tax rules can change over time.
  • In the event that the company does not comply with the rules throughout the qualifying period, HMRC may withdraw and reclaim and tax relief which has been given.
  • These products generally invest in unquoted businesses and are therefore can be volatile in terms of value
  • These products are generally designed to be a medium term investment (circa held for five years) and they may be either difficult to sell in that period or potentially selling early could result in a loss.
  • Charges applying to these investments are generally higher than those associated with other financial products.
  • You may not have the right to complain to the Financial Conduct Authority and you may lose the right of access to the Financial Ombudsman Service if you are a self-certified sophisticated individual or a high net worth investor.
  • You may have no right to seek compensation from the Financial Services Compensation Scheme.
  • If you qualify and have signed a certificate either as a self-certified sophisticated individual or a high net worth investor you may subject to promotion of an Unregulated Collective Investment Scheme? The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested.
  • In the event that the company does not comply with the rules throughout the qualifying period, HMRC may withdraw and reclaim any tax relief which has been given. At this point you may not have the right to complain to the Financial Conduct Authority and you may lose the right of access to the Financial Ombudsman Service.
 




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Free EIS Guide

Download our free & comprehensive guide to EIS. All investment decisions must be made solely on the fund's prospectus.