Investment values can fluctuate
An EIS invests in smaller companies which are considered high risk because they have a higher failure rate than more established businesses. The value of an EIS investment can fall as well as rise, and investors might not get back as much as they originally invested.
Smaller company shares can be more volatile
The shares of EIS-funded companies can also change value more quickly and more significantly than the shares of larger companies, such as those listed on the main market of the London Stock Exchange.
An EIS is a long-term investment
If the investor sells their EIS shares before the three-year minimum holding period ends, they will have to repay any income tax relief claimed. Investors should think of an EIS as a long-term investment.
Past performance is no guide to the future
The past performance of an investment is not a reliable indicator of future results. Nor should investors rely on any forecasts made about future returns.
EIS shares may be difficult to sell
It may be difficult for an EIS investor, or EIS fund manager, to find a buyer for the shares, so it may take time to sell the shares and pay back the proceeds to investors. The companies that an EIS invests in are often unlisted so investors may have to wait until the company is sold or has large enough cash reserves to buy back its shares from investors.
Tax rules can change
Rates of tax, tax benefits and tax allowances depend on an investor’s personal circumstances and may change over time. There is no guarantee that companies will always be EIS-qualifying. If a company no longer qualifies for an EIS, investors may have to repay any tax relief already claimed. It’s also worth remembering that HMRC may change the rules on EIS tax relief in the future.