Loss Relief can boost EIS returns

Unsuccessful EIS & SEIS investments are eligible for Loss Relief whilst the winners incur no CGT. Consequently a portfolio of winners and losers can produce a better return than one where the returns are identical.

This makes the the overall tax incentives of EIS even more attractive, as seen in the following example in which two EIS companies in a portfolio become worthless, two repay the original gross cost and one is successful, repaying double the cost. Overall the investor still achieves a net profit:

Initial investment
In 5 companies
EIS relief (£30,000)
Net cost £70,000
EIS Co 1 EIS Co 2 EIS Co 3 EIS Co 4 EIS Co 5 Total
Net cost £14,000 £14,000 £14,000 £14,000 £14,000 £70,000
Realisation amount £0 £0 £20,000 £20,000 £40,000 £80,000
Loss relief (@45%) £6,300 £6,300 0 0 0 £12,600
Gain/loss -£7,700 -£7,700 £0 £0 +£26,000 £10,600

This example assumes that the investor’s marginal rate of tax at the time of realisation is 45%. The comparison is even more favourable if SEIS relief is obtained. However, there is no guarantee that any of the investments will increase in value.
Warning: EIS & SEIS represent high risk investments which should only be considered by experienced investors able to withstand substantial losses.

I have a question...

We're here to help. Quickly get to the answer you need by speaking to an EQ financial adviser now: Call 020 7488 7171 Mon-Fri, 8:30am-5:30pm
  • Search the EQ library

  • Find articles by theme

Some Free EQ Guides

10 Tips for Investing a Windfall

Coming into money isn’t something that happens often. Before you commit yourself to spending, investing, giving gifts or even giving up your job, here are some tips on how to make your windfall work for you in the long run.

Financial Planning Services

EQ is a Chartered Financial Planning firm able to offer a wide range of services to private clients including tax optimisation, retirement income planning and estate planning.

Final Salary Pension Transfers

The April 2015 Budget saw the most radical changes to the pensions landscape for a generation, but the new flexibility on offer is only available to personal pension holders. Members of final salary schemes can only access the new rules by transferring to a personal pension.

Saving Inheritance Tax

This guide explains how planning ahead of time can provide for – and in most cases reduce – the amount of tax that is ultimately due on your estate.

Spring Clean Your Finances

When it comes to money, it is fairly easy to get so entangled in the jargon that you lose sight of basic sound financial planning principles. This guide provides some pointers on important steps to take, and a few pitfalls to avoid, along the road to a healthy financial future.