Private markets are home to early-stage companies that are building the next industrial revolution. The Enterprise Investment Scheme (EIS) was designed to encourage investment in innovative companies by offering a range of tax incentives such as 30% income tax relief, capital gains tax exemption, and loss relief.
The examples below show how EIS can affect both the downside and upside of an investment in our EIS Climate Change Fund, which is deployed across a portfolio of early-stage companies.
Loss Relief is applied to failed portions of the portfolio and calculated assuming the investor pays a 45% marginal income tax rate. We assume a portfolio of 12 companies. In the scenario with 6 companies failing, loss relief is calculated as 45% of the net value of the holdings in each of the 6 companies that fail i.e. the amount invested in each less the 30% upfront tax relief obtained on each investment. Investors with a lower marginal income tax rate will get a lower Loss Relief.
Performance fees (calculated as 20% of the profit generated by the investor’s portfolio) vary by portfolio return outcome.
For illustrative purposes only. Past performance is not a reliable indicator of future performance. There is no guarantee that the investment objective will be met.
Reducing capital at risk
An investment of £25,000 into the Fund results in £24,400 being invested after our one-off upfront fee, while the 30% income tax relief returns £7,320.
If every company in the portfolio were to fail, loss relief at 45% would return a further £7,686. Together, these reliefs mean that around 62% of the investment is recovered.
Target performance scenario
Shares held for at least three years are exempt from capital gains tax, helping you retain more of the proceeds from any successful exit.
The second scenario assumes the Fund achieves its target return of 3x over a diversified portfolio of 12 companies. In this example, half of the companies fail, while a few generate strong returns such as Zeigo’s exit in 2022, alongside one exceptional performer. After fees, the portfolio returns £63,560, with those gains realised free from capital gains tax.
