There are various reasons for choosing to invest in an EIS-qualifying company, depending on individual investor goals and preferences.

Potential for high growth

Many businesses seeking EIS funding are in the early stages of their development, with ambitious growth plans. For investors, this presents a chance to share in the success of companies as they embark on their growth journey.

Tax reliefs to offset risks

The EIS offers several tax benefits, including loss relief, which can help mitigate the financial risk if the investment doesn’t succeed. Given the high-risk nature of these investments, this is a particularly valuable feature. It’s important to note that tax treatment is subject to individual circumstances, current legislation, and the company maintaining its EIS-qualifying status.

Investing in innovation

EIS-qualifying companies are often young and innovative, focused on providing new solutions to existing problems or creating something entirely original. Investing in such firms allows investors to support the development of pioneering ideas.

Diversifying investment portfolios

Smaller companies usually experience different market cycles compared to larger firms, offering investors an additional layer of diversification. For those comfortable with higher risk, investing in EIS-qualifying companies can provide exposure to businesses outside the traditional investment market.

A complement to long-term investments

EIS shares are designed to be held for the long term and come with distinct benefits and risks. For this reason, many investors view them as a complement to their broader investment strategy, which may include ISAs, VCTs, and pensions. However, it’s crucial to understand that EIS is not a substitute for more traditional long-term investments like pensions.

Tax planning opportunities

The variety of tax reliefs available under the EIS can provide valuable options for investors interested in tax planning, offering multiple ways to manage their financial portfolio efficiently.

Supporting UK economic growth

Investing in EIS-qualifying businesses not only offers personal financial benefits but also contributes to the broader UK economy. Investors are backing entrepreneurial ventures that drive innovation, create jobs, and enhance productivity across the country.