Things to consider when choosing an EIS investment

There are a number of important factors investors need to think about when choosing the EIS investment that’s right for them.

Consult a financial adviser

Every investor is different, and their personal circumstances affect the level of risk they’re willing to take. 

It’s crucial for investors to consult a financial adviser who can help them find an EIS investment that fits their investment goals and financial limitations.

Consider the risks

Investors should carefully consider and understand the risks associated with investing in EIS opportunities. An investor’s capital is at risk if they make an EIS investment. EIS-qualifying companies are not listed on a stock exchange (with the exception of AIM) and could fall in value – including to nil. 

It’s important to note that the value of EIS shares could rise or fall quite sharply compared to larger, more established companies. Also, it’s not easy to sell shares in unlisted companies.

EIS tax reliefs depend on the company maintaining its EIS-qualifying status for at least three years. Due to the nature of the investment, it’s possible that a company might cease to be EIS-qualifying and any relief previously granted will have to be paid back to HMRC.

Finally, tax rules could change in the future. This could affect the kind of tax relief investors are allowed to benefit from (the value of tax relief depends on the individual circumstances of an investor).

Choose the right investment manager

If an investor’s considering investing in a portfolio of EIS-qualifying companies chosen by an investment manager, they should look at their EIS manager’s experience in terms of choosing and investing in smaller companies. (But remember: past performance isn’t a guarantee of future returns.)

Also, note that the time it takes to sell EIS shares is likely to depend on when they were bought and when there’s an opportunity to sell them (this could take up to ten years or more). It might be worth choosing an EIS manager with a good track record of providing viable exit opportunities.

Check the fees

Investors should check the fees of the EIS portfolio service they’re interested in, and compare them with what other EIS managers charge.