With income tax relief increased from 20 to 40
per cent, venture capital trusts are the talk of the town while enterprise investment schemes are largely forgotten. However, while EISs qualify for only 20 per cent income tax relief, they are demonstrably more tax-efficient than VCTs.
EISs offer capital gains deferral relief for gains crystallised in the last 36 months or in the next 12 months. They also offer loss relief. If a company that forms part of the underlying assets of a VCT goes belly up, that loss merely depresses the net asset value of the VCT, whereas a loss within an EIS can be offset against income or capital gains tax.
Finally, EISs are inheritance tax-efficient under the relevant business property rules.
Having looked at current offerings, there is one I like particularly. Lacomp British Enterprise EIS Fund 3 invests in a number of exciting pre-IPO companies, before the uplift usually associated with a listing on the Alternative Investment Market. Lacomp is relatively little known but was short-listed for one of the MultiManager Fund Manager of the Year awards.
Lacomp has assembled an impressive panel to help it source, evaluate and monitor unquoted firms. Its last EIS invested in a private company that has developed a patented solution, currently undergoing NHS field trials, capable of neutralising bacteria and viruses including MRSA. Lacomp has obtained an option to include this company in EIS Fund 3.
Initial commission of up to 4 per cent and trail of 0.5 per cent for three years are available. The fund closes on October 31, so you need to act fast.
Darius McDermott is managing director of Chelsea Financial Services