Direct & Tax- Efficient Investment Funds
There are some great options to invest into private, young companies, either directly through crowdfunding services, or into tax-efficient vehicles such as EIS, SEIS and VCT funds.
If you have maxed out your ISA and pension contributions, many investors look at tax-efficient investment funds and direct investment into specific companies. It is important to note, however, that these are often for 'sophisticated investors only' as the risks are often higher than other forms of investment. It is therefore recommended that you consult with a financial advisor to look at these types of investments.
What Types of Investment are There?
Tax-efficient investment funds
To help encourage investors to invest into small and fledgling companies in the UK, the government has a number of schemes which carry generous tax incentives. These include Venture Capital Trusts (VCTs), the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme, Social Investment Tax Relief (SITR) and Community Investment Tax Relief (CITR).
The main thing about these tax-efficient schemes is that investors can receive tax relief on investing into such companies. For EIS and VCTs, for example, you can receive 30% tax relief on the amount you invest. This means that of the amount you invest, 30% of that can be used to offset your tax bill. More detail on these schemes can be found here: EIS, SEIS and VCT, and SITR and CITR.
There are many funds that invest into these early stage companies, seeking to grow them like any investment, and also to take advantage of the tax benefits that exist. Typically, these investment funds are either VCTs, SEIS or EIS funds, and invest into up to 10 companies over a period of 5+ years. They are only open for 'sophisticated investors' and often have minimum investment amounts from £10,000.
Direct investments and crowdfunding
There are many opportunities to invest directly into young companies and projects, which often change as those that are seeking finance come and go.
Many of these direct investments have similar tax advantages to those outlined above, particularly the EIS and SEIS schemes. However while they do carry these opportunities, they are also often higher risk than other investments. Unlike tax-efficient investment funds, often direct investments through crowdfunding websites are open to anyone, with minimum investment amounts much lower.
Property is a popular investment, often due to its stability. There are, however, limited ethical options. There are often no specific tax advantages to use.
Microfinance is where you (the investor) lends money directly to individuals or small businesses, and ordinarily receive a return from the interest on the loan. It is the same concept as peer to peer lending, however microfinance specifically refers to loans given to those who lack traditional banking services, such as entrepreneurs or businesses in the developing world. There are no tax advantages to take use.