The Enterprise Investment Scheme (EIS) is growing with spectacular speed. Since its inception, £14.2bn has been invested through the scheme according to HMRC statistics, providing much needed capital to Britain’s entrepreneurial businesses.
As well as providing opportunities for companies to gain early stage funding, EIS also provides many benefits for investors, and our research shows that millennials are leading the way in taking advantage of these, joining the group of typically highly sophisticated, well-informed and advised investors with over £1m in investments.
The research, launched this week, looks at UK investors’ attitudes towards risk, returns and investing in tax efficient products. It finds that millennials – those aged 18-30 – are twice as likely to embrace early-stage investing as a means of reaching their financial goals than those aged 51 and up. Similarly, young investors are the most likely to seek out EIS and seed enterprise investment scheme (SEIS) opportunities.
Their main reasons for doing so are simple, and based on one of the most straightforward investment principles – long termism. Nine in 10 investors aged 18-30 believe a portfolio of diversified early-stage equities will help them achieve their long-term financial goals.
When you look at this in relation to the investment backdrop of the last few years, this is perhaps not surprising – the ongoing search for yield is well documented. Many investors are looking at alternative routes to get the capital growth they require, while balancing diversification needs. In fact, this was a key reason for us launching Fund Twenty8, a unique fund that provides a high level of diversification for investors wanting access to early stage companies and the tax benefits of EIS.
Two thirds of all investors see “the prospect of higher returns” as a big incentive to move into investing in early-stage equities. Almost three quarters of millennial investors are planning to take on more investment risks now than a year ago. But this group of investors is not going into these products with their eyes closed – knowledge and access to information are key.
The research shows that young investors’ knowledge of EIS, SEIS and venture capital trusts (VCTs) is much higher than that of older age groups. Those with over £1m in assets also show much higher levels of knowledge than those will fewer assets, with over half of those with over £1m of investments viewing tax breaks on income and capital gains as “very important” when considering early-stage equity investments, compared to 34 per cent for retail investors overall.
This suggests the disparity of interest in tax-efficient investment schemes and early-stage investing among the different age groups and types of investor could simply be down to awareness and knowledge of products such as EIS.
It is hugely important that any retail investor considering an investment in early-stage businesses makes sure they are able to take advantage of the generous tax breaks when doing so as EIS alone may add up to just over 60 per cent of tax reliefs. Narrowing the knowledge gap among certain investor types could have a material impact on their investment returns, allowing them to reach their goals more quickly. This would have the added benefit of encouraging further investments into early stage companies.
As the end of the tax year approaches we will be regularly reminded of the importance of taking advantage of tax benefits across the different types of investment products. The combined growth opportunity and tax benefits available through EIS funds or investments via a crowdfunding platform can be highly attractive, and should be a consideration for any investor with a long investment time horizon – not just the millennials who are currently leading the charge.