Most IFAs are frightened of Enterprise Investment Schemes and, in many cases, quite rightly. But there are some excellent asset-backed schemes in growth areas which all IFAs should consider as part of a portfolio for their bigger clients.
They do have two major taxation advantages over venture capital trusts. Like VCTs, they have 20 per cent income tax relief, capital gains tax deferral and tax-free capital gains. But, unlike VCTs, if you lose money on your investment, you can get tax relief. They are also exempt from inheritance tax. On the other hand, dividends are not tax-free.
The answer is to invest in an EIS which goes for all-out growth. The one I like best is Childcare Corporation 4, sponsored by Teather & Greenwood.
The childcare sector is currently worth more than £3bn a year and is experiencing strong growth as a result of socio-economic trends, cutbacks in local authority childcare provision and the Government's childcare tax credits introduced in the 1998 Budget.
The number of day nursery places has been projected to grow by 50 per cent between 1999 and 2003 from 210,000 to 315,000 places.
What I particularly like about Childcare Corporation 4 is that it is run by highly experienced managers of nurseries and is used by many major institutions. The operations director, John Woodward, was the founder of the BusyBees Group, which is recognised by local authorities as the leader in its field. This also means it can attract the best staff, which is not as easy for those people who are starting up in the business.
I believe that an investment in Childcare Corporation 4, even without the excellent tax reliefs, is a good investment in its own right. It has raised £5m already and expects to raise another £5m before the offer closes on June 30.