Tax-efficient investments

Britain has a rich, centuries-long history of innovation. Fast-growing young companies contribute £1 trillion to our economy and employ 3.2 million people: they are the country’s growth engine, the lifeblood of the economy.

Vital to this is the support of private investors, often backed by the government through its Venture Capital Schemes: Venture Capital Trusts (VCTs), and the Enterprise and Seed Enterprise Investment Schemes (EIS and SEIS). 

These schemes were set up to encourage investment in young and dynamic British enterprise. The long-term reward for doing so is the potential to back a winner if things work out. The short-term reward for experienced investors is the significant tax reliefs the government offers in exchange for supporting high-risk younger businesses.

Despite investing in broadly similar types of companies, there are significant differences between VCTs, EIS and SEIS.

Firstly, the tax reliefs and allowances. Secondly, the structure.

When you invest in a VCT, you acquire shares in the trust, not in the underlying companies. So, with one VCT share you gain exposure to all the companies in the VCT portfolio. Moreover, theoretically, you could sell your shares any time and realise your investment, although there may be restrictions.

When you invest in an EIS or SEIS fund, you acquire shares in the underlying companies. As those are not typically listed, you cannot usually sell your shares on the stock market. You can only realise your investment when there is an exit, i.e. the company is sold, listed on a stock market or refinanced. EIS/SEIS funds will typically be less diversified than a VCT, as fewer companies are held.