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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
£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.

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