# The purpose of EIS Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-10-11 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Why So Many Financial Advisers Are Missing Out on EIS Meta Description: Discover why EIS funds are not just for the mega wealthy and how they can benefit a broader range of clients. Explore tax-efficient opportunities for investors. URL: https://financedigest.com/the-purpose-of-eishtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/financial-reportzkuaodo-1736837669667-compressed.jpg) _By_ **_Andrew Aldridge,_** _Partner at Deepbridge Capital_ In 2021, it is still remarkable when you hear financial advisers dismissing investment opportunities out of hand. My guesstimate, based on a decade of experience in the financial services sector, is that approximately 30% of advisers in the UK will [consider Enterprise Investment Scheme funds](https://www.financedigest.com/norway-wealth-fund-to-consider-investing-in-unlisted-equities.html "Norway wealth fund to consider investing in unlisted equities") as part of their financial planning.  So why are so many advisers dismissing such [opportunities and what are they missing](https://www.financedigest.com/accountants-risk-missing-post-brexit-opportunities.html "Accountants risk missing post-Brexit opportunities") out on? One of the potential misnomers is that EIS, and other tax efficient [investments such as VCTs and Business](https://www.financedigest.com/analysis-uk-crisis-forces-off-kilter-businesses-to-halt-investment.html "Analysis-UK crisis forces ‘off kilter’ businesses to halt investment") Relief propositions, are only for the mega wealthy.  With the pension LTA and tapered annual allowances now affecting many more clients than just ‘the wealthy,’ there is perhaps now a genuine [need to consider](https://www.financedigest.com/institutions-need-to-consider-spreadsheet-management-to-meet-the-pras-latest-stress-testingexpectations.html "Institutions Need to Consider Spreadsheet Management to Meet the PRA’s Latest Stress Testing Expectations") other tax-efficient structures for a broader range of clients.  With most EIS funds accepting investments as little as ten thousand pounds, there are [opportunities for advisers to provide investors](https://www.financedigest.com/the-vc-opportunity-breaking-down-barriers-for-private-investors.html "The VC opportunity: breaking down barriers for private investors ") with tax-free growth away from pensions without having to commit unwieldy amounts – of course there are a myriad of other tax reliefs with EIS qualifying investments as well, not least 30% income tax relief, CGT deferral, inheritance tax exemption after just two years and loss relief in case everything does go wrong. There really is no-greater Government giveaway to investors. Let’s take a client who [invests £12,000 each year](https://www.financedigest.com/liverpools-new-chinatown-perfectly-positioned-for-property-investment-this-chinese-new-year.html "Liverpool’s New Chinatown perfectly positioned for property investment this Chinese New Year") into EIS propositions for five years. If that provides them with diversification across approximately three companies each year, then after five years they will have amassed a [private equity](https://www.financedigest.com/can-private-equity-do-for-africas-manufacturers-what-its-done-for-f1-and-rugby.html "Can private equity do for Africa’s manufacturers what it’s done for F1 and rugby?") portfolio of fifteen growth-focused companies.  Such a portfolio would be minimally correlated to main market fluctuations and could also form part of wider [inheritance tax](https://www.financedigest.com/what-is-inheritance-tax-share-loss-relief.html "What is inheritance tax share loss relief?") planning.  In fact, to be profitable this portfolio could require as few as four of the [companies achieving reasonable growth](https://www.financedigest.com/ultimate-growth-for-sme-finance-company.html "Ultimate growth for SME finance company").  Any other successes in the portfolio are all profit and, importantly, tax-free growth (subject to EIS rules, such as [assets being held for a minimum of three years)](https://www.financedigest.com/analysis-investors-face-expensive-quest-for-year-end-cash-and-safe-assets.html "Analysis-Investors face expensive quest for year-end cash and safe assets"). One of the [additional concerns from advisers is the risk profile of such products](https://www.financedigest.com/animal-feed-additives-market-regional-industry-segmentation-analysis-by-production-consumption-revenue-and-growth-rate-by-2031.html "Animal Feed Additives Market Regional Industry Segmentation, Analysis by Production, Consumption, Revenue and Growth Rate by 2031"). Such [funds should absolutely be considered](https://www.financedigest.com/eu-considers-more-funds-for-eastern-states-in-bid-for-deal-on-russia-oil-ban.html "EU considers more funds for eastern states in bid for deal on Russia oil ban") as high risk and illiquid.  However, within a well-balanced and [diversified portfolio](https://www.financedigest.com/how-to-successfully-diversify-your-portfolio.html "How to Successfully Diversify Your Portfolio"), there could be opportunities to maintain an appropriate portfolio risk profile whilst including EIS opportunities to create a private equity portfolio.  Of course, such a portfolio could also benefit from the downside protections of [tax and loss reliefs](https://www.financedigest.com/adding-revenue-through-rd-tax-relief-service-2.html "Adding Revenue through R&D Tax Relief Service"). For example, tweaking the balance of a portfolio to include more ‘lower risk’ products, such as bonds, could allow for a small proportion of high risk EIS [stocks which provide the potential](https://www.financedigest.com/stocks-becalmed-before-potential-cpi-storm.html "Stocks becalmed before potential CPI storm") for significant growth whilst maintaining the overall portfolio risk profile. So, EIS isn’t just for the super wealthy and is [also not just for the world’s](https://www.financedigest.com/old-trafford-attracting-not-just-footballers-from-around-the-world-but-also-investors.html "Old Trafford attracting not just footballers from around the world, but also investors") risk-takers. EIS could form part of more [investors’ portfolios](https://www.financedigest.com/investors-reorient-portfolios-amid-macroeconomic-challenges.html "Investors reorient portfolios amid macroeconomic challenges").  So, why else are some advisers still refusing to look at such propositions?  There are various hypotheses but, in reality, it predominately comes down to habit and education.  There have been various changes to the sector over the five years which has meant those advisers used to the historic ‘asset-backed EIS’ funds are perhaps taking time to come to terms with the modern focus of EIS being to support growth-focused companies which are perhaps perceived as being [higher risk](https://www.financedigest.com/dollar-higher-on-risk-aversion-euro-revisits-parity.html "Dollar higher on risk aversion; euro revisits parity"). The good news for advisers is that there has probably never been more EIS education available, with providers (including Deepbridge), the main compliance service providers and networks, specialist education providers such as Intelligent Partnership and our trade body the Enterprise [Investment Scheme](https://www.financedigest.com/unregulated-investment-schemes-remain-a-threat-to-investors.html "Unregulated Investment Schemes Remain a Threat to Investors") Association (EISA) all providing excellent educational materials and courses. The thing to remember is the UK Government offers the Enterprise [Investment Scheme to UK investors in order to encourage them to support growth-focused companies which are seeking to create jobs and create businesses which will be the economic](https://www.financedigest.com/the-politics-economics-and-investment-implications-of-brexit.html "The politics, economics and investment implications of Brexit") backbone of the country.  As the [economy seeks](https://www.financedigest.com/ukraine-seeks-debt-payment-freeze-as-war-ravages-economy.html "Ukraine seeks debt payment freeze as war ravages economy") to recover post-pandemic then EIS has never been more important and should be at the forefront of consideration by financial advisers and investors. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---