Enterprise investment schemes have benefited from the Budget in that
investors can now cash in after three years and still retain their tax
relief and make profits free of capital gains tax. Previously, the
qualifying period was five years.
The EIS is, of course, more risky than the venture capital trust in that
the VCT invests in a variety of companies and the EIS in only one.
But the EIS does have some great advantages over the VCT in that CGT
deferral is unlimited.
A husband and wife can invest £150,000 each in any one year and receive 20
per cent tax relief. VCTs are limited to investments of £100,000 in any one
year and CGT deferral is limited to the same amount.
The other big advantage that the EIS has over the VCT is that the proceeds
are free from inheritance tax on death whereas VCTs are subject to
inheritance tax, as for Peps and Isas.
The real answer is to build up an EIS portfolio from reputable providers.
The leaders in the field are stockbroker Trather and Greenwood and bankers
Close Brothers and Matrix.
Trather and Greenwood runs an EIS portfolio which was launched at the end
of 1998. So far, the 15 EIS have risen in value by 280 per cent.
I like its latest launch, Childcare Corporation Two, which runs children's
day nurseries managed by Busy Bees. Parents are spending more than double
the amount on childcare that they did in the early 1990s. With more and
more mothers going to work, this market looks likely to expand further.
The EIS should certainly be part of a bigger investor's portfolio, even if
they have no CGT to defer.