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.

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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
£100,000
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

Notes
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.