IN THE bad old days – when Britain was clearly divided between haves and have-nots – it was easy for the average Marxist to distinguish between the capitalists and the rest of us. However, with shareholdings, private pensions and crowdfunding, things have got a little complicated for those who want to bring down the “owners”. To a greater or lesser extent, we’re all in it together.
But despite the progress we’ve made, there are still plenty of limits on the development of a proper shareholder economy. Recent governments have gone some way to helping sow the right seeds – most impressively with the raising of the Individual Saving Account (Isa) tax allowance to £15,000 per year – but they’ve also inflicted damage, most recently by restricting equity crowdfunding to 10 per cent of investors’ assets.
Thankfully, there are plenty of ways of upping your capitalist credentials. And for workers earning a decent wage, angel investing is one of the most worthwhile routes.
THEM’S THE TAX BREAKS
You don’t need to have the heart of an angel to invest in a fledgling business: the tax breaks on offer would convince even Ebenezer Scrooge to take a punt.
The Seed Enterprise Investment Scheme (SEIS) offers 50 per cent income tax relief on up to £100,000 of investments in early stage companies (providing the investments are held for three years from the date of issue), exemption from capital gains tax when reinvested in SEIS companies in the same tax year, and exemption from capital gains tax on disposal of SEIS shares after three years. It is to the government’s credit that it introduced this tax break back in 2012 and confirmed its permanence in the recent budget.
The Enterprise Investment Scheme (EIS) offers 30 per cent income tax relief on up to £1m of investments per tax year, exemption from capital gains tax on disposal of EIS shares after the end of the three-year relevant period, and allowance for losses on the disposal of the EIS shares to be offset against either income or capital gains tax (less any income tax relief given). EIS is one of the main reasons we are currently seeing a boom in entrepreneurship.
Government also supports angels through the £100m Angel CoFund, which invests alongside business angel syndicates.
HEADS YOU WIN AND TAILS COULD BE WORSE
Investing in startups is risky, but SEIS and EIS limit the downsides. For the 2012-13 tax year, investors were offered up to 100.5 per cent tax relief for investment through SEIS. The maximum relief now available is 86.5 per cent, which, though not a one-way bet, should not be sniffed at.
Although more than half of startups fail, Nesta/UK Business Angels Association (UKBAA) research suggests taking a portfolio approach to spread your risk across businesses and sectors. Investing in what you know, carrying out at least 20 hours of due diligence, and following your investment can increase your chances of returns. Diversification and investing in what you know are often contradictory, although joining a syndicate could help cover both bases.
MORE THAN MONEY
According to UKBAA/Deloitte research, 74 per cent of angels said that the SEIS and EIS were significant or highly significant to their investment decision-making. And 86 per cent said that they usually or always use EIS or SEIS.
Money matters, but being an angel isn’t just about being tax efficient. As an angel, you will be able to make use of your professional talents, or tap into skills not utilised in your job. If you’re a hands-on investor, you could learn skills useful to your professional development, and sate your thirst for entrepreneurship without quitting your job. Hearing pitches from entrepreneurs and meeting them to discuss their ideas is intellectually stimulating, and their enthusiasm is highly contagious. In fact, investing may be the first step to starting your own business. Angel investing is also an opportunity to give something back to society by mentoring and funding the next generation. What are you waiting for?
Philip Salter is director of The Entrepreneurs Network. Visit ukbusinessangelsassociation.org.uk to find out more about becoming an angel.