ENTERPRISE INVESTMENT SCHEME

Transcription

1 ENTERPRISE INVESTMENT SCHEME THE DEEPBRIDGE GUIDE I N V E S T I N G F O R T H E F U T U R E

2 IMPORTANT INFORMATION This guide provides general information about Enterprise Investment Scheme (EIS) investments and should not be regarded as investment, financial or taxation advice. Individuals should only invest on the basis of information provided in the respective Deepbridge Information Memorandum and application documentation. Although Deepbridge can transact business directly with clients, Deepbridge always recommends clients consult their own independent financial and tax advisers regarding their particular circumstances. Investments may go down as well as up and investors may not get back the full amount invested. EIS investments are not suitable for everybody so it is important that the risks involved are fully understood before deciding whether an EIS is the right option. The Information provided does not constitute or form part of an offer, subscription, recommendation for any investment. No undertaking, representation, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness of the information or opinions contained in this document. Rates of tax, tax benefits and allowances are based on current legislation and HM Revenue & Customs (HMRC) practice. HMRC may change the rules on EIS tax relief at any point. Version 1.1 September

3 WELCOME TO DEEPBRIDGE Deepbridge is a different kind of investment manager. We work closely with our private investors to design innovative products, ranging from direct investment in exciting technology growth companies to asset-backed renewable energy projects, to meet their specific needs. Simultaneously, we also partner with great management teams to help them realise their potential and build successful leading-edge businesses. We operate across four principle divisions: disruptive technology, life sciences, renewable energy and sustainable technologies. Everything we do is underpinned by our extensive knowledge and experience in the divisions in which we operate. We only expose our clients to areas in which we have an exceptionally high degree of expertise. We also promote a culture of professional excellence and integrity, which characterises all that we do. We therefore strongly encourage our investee companies to achieve the highest standards of corporate governance. We bring value to investee companies through our proven experience of building growth businesses, involving our worldclass network of investors, technology advisers, and industry partners. Our key differentiator from other investment managers is that our team and experts are all vastly experienced in building and growing businesses, so when we support an investee company we can offer practical guidance and support which results in better outcomes. Yours faithfully, Ian Warwick Managing Director 3

4 INTRODCUED IN 1994 INVESTMENT LEVELS RISING YEAR ON YEAR 9.7BN INVESTED IN EIS TO DATE 1BN INVESTED IN EIS IN 2012/2013 INTRODUCTION The Enterprise Investment Scheme (EIS) is a government initiative designed to attract investment into small UK companies. EIS investments provide enterprise capital to small unlisted companies that might otherwise struggle to attract funding. The Government recognises the important role smaller businesses play in a successful economy and offers tax benefits to EIS investors in order to ensure funding is available. Since their introduction in 1994, EIS investments have grown in popularity with subsequent increases in limit levels ensuring investment volumes continue to rise year on year. According to figures provided by HM Revenue & Customs (HMRC), more than 9.7bllion* has been invested through EIS to date (up to the end of the 2012/2013 tax year) with more than 1billion of this invested in 2012/2013. * Source: HMRC EIS Statistics, December

5 THE 100% RULE INVESTOR FEE-FREE 100% OF INVESTMENT ELIGIBLE FOR TAX RELIEF GROWTH OPPORTUNITIES BENEFITS OF A DEEPBRIDGE EIS The 100% Rule The Deepbridge Technology Growth EIS is an investor fee-free EIS opportunity. Investors are therefore not charged any fees at point of investment. Upfront and ongoing fees are paid by the investee companies: this advantage allows investors to enjoy 100% of EIS tax benefits and to have 100% of their investment actually put to work earning investment returns. Preservation Some EIS opportunities specifically target companies with predictable revenue streams and tangible assets in order to primarily preserve capital. Focusing on asset-backed renewable energy projects with long-term stable cash flows, which qualify for EIS tax reliefs, the Deepbridge Renewable Energy EIS invests in a portfolio of renewable energy assets which generate electricity using proven technologies. Growth Investing in smaller UK businesses has the potential to offer significant long-term growth, if they are successful. Smaller businesses often have the possibility for quicker growth than larger businesses although they also carry a higher risk of loss and value can be more volatile. The Deepbridge Technology Growth EIS has been designed by industry experts to exploit market opportunities in the technology sector and to maximise growth opportunities. Diversification Smaller companies behave and perform in a different manner to larger listed organisations, following different investment cycles. A Deepbridge EIS can, therefore, bring additional diversification to an investment portfolio. Alternative Investment As pension lifetime allowances have reduced, many investors require alternative forms of tax efficient long-term investment, such as a Deepbridge EIS. Deepbridge always recommends that clients seek advice from the financial adviser to ensure their financial planning is cohesive. 5

6 CONTROLS, PROCEDURES & REPORTING ADVICE, GUIDANCE & MENTORING EXPERIENCED BUSINESS BUILDERS DISTRIBUTION NETWORK HOW DOES DEEPBRIDGE INVEST? Successful investment in small businesses requires an appropriate balance between entrepreneurial optimism and venture capital realism. Investors can be blinded by the potential upside in early stage development. However, seeing the path to commercialisation from a realistic standpoint demands an objective and experienced perspective from both the Manager and Investment Adviser. Deepbridge takes an active role to guide, mentor and counsel the investee management team. The provision of hands on operational experience combined with financial expertise can materially mitigate the investment risk borne by the investor, along with comprehensive due diligence on investee companies. As well as taking a seat on the Board, Deepbridge will also provide investee companies with: Assistance in establishing controls, procedures and financial reporting at a standard required for exit; Advice, guidance and mentoring to impart the wealth of experience Deepbridge has with a view to growing the company quickly and profitably; Advice from and/or secondment of our team of experienced business builders; Assistance in establishing worldwide distribution through our network of partners and distributors around the world. Deepbridge has strict internal criteria regarding which companies to invest in. Deepbridge invests in sectors where the management team has experience or knowledge of the industry in order to ensure they have the ability to engage with the company in a proactive manner. The Deepbridge management team possesses a strong track record of building successful companies and delivering value to investors through all stages of growth. 6

7 NEW SHARES LESS THAN 250 EMPLOYEES GROSS ASSETS < 15M EXCLUSIONS APPLY HMRC RULES HMRC sets prescriptive EIS qualification criteria for companies: Any investment must be purchasing new shares (rather than acquiring existing shares); The company must have fewer than 250 employees; The company has gross assets of 15m or less before investment (or 16m after investment); EIS investment in a singular company does not exceed 5m in any one year; The company must use the investment with 24 months; The company cannot be controlled by another company; A number of excluded industry sectors, predominantly in and around financial services and property. 7

8 EVALUATION ACTION EXECUTION OUTCOME THE DEEPBRIDGE OUTCOME DRIVEN METHODOLOGY TM Deepbridge has developed the Deepbridge Outcome Driven Methodology TM, based on years of real-world experience of business building. This methodology is intended to purposefully drive management focus, ensuring every development stage is focused on a successful outcome for investors. All investee companies within the Deepbridge Technology Growth EIS must be able to clearly define the four stages of the Deepbridge Outcome Driven Methodology TM : Evaluation Businesses must be able to articulate proof of concept (showing a significant market need), proof of relevance (highlighting the potential to create new market segments or displace existing market offerings) and proof of commercialisation (define a clear and realistic path to commercialisation). Action Investee companies must be able to demonstrate necessary supply chains, robust intellectual property and a committed and engaged founding team. Execution Companies must be able to prove a clear business plan with defined commercial objectives as well as a robust organisational plan with distinct goals. Deepbridge will work closely with investee companies to guide, mentor and counsel, as required, to ensure plans are delivered. Outcome Investee companies need to demonstrate a clear exit strategy in order to provide investors with their returns. Deepbridge considers that flexibility is key. Therefore, the Deepbridge team will assess any opportunity to capitalise on exit opportunities, notwithstanding the three year EIS period, if an early exit is in investors best interests. In any event; by the end of the initial three year period, if not before, the investee companies should have established revenue streams supported by a three year track record. As such, Deepbridge believes that either a sale of the investee company, or a sale or refinancing of the assets owned by the investee company, will enable funds to be returned to Investors. 8

9 30% UPFRONT INCOME TAX RELIEF TAX-FREE GROWTH 100% IHT RELIEF AFTER TWO YEARS 100% CGT TAX DEFERRAL TAX INCENTIVES Investors become eligible for certain tax benefits available through EIS depending on the length of time the underlying investments are held for: 30% upfront income tax relief Deepbridge EIS investors may claim up to 30% income tax relief, provided the qualifying investment is held for at least three years. Investors can claim up to 300,000 for the current tax year and up to 300,000 against their income tax liability for the previous year, as long as the amount of tax relief claimed is not more than the income tax paid. Tax-free growth If a Deepbridge EIS investment increases in value, there is no capital gains tax (CGT) to be paid. 100% inheritance tax relief after two years As Deepbridge EIS shares are eligible for business property relief (BPR), there is no inheritance tax payable if held by the investor for at least two years and they are still held at the time of death. For advice regarding BPR investors should contact their financial or taxation adviser. 100% capital gains tax deferral Any taxable capital gain (from thirty six months before an EIS investment or twelve months after) can be invested in a Deepbridge EIS qualifying company and the CGT will be deferred for the duration that investment is held. If the investment is still held when the investor dies the deferred tax is eliminated. Loss relief Although it is hoped that shares in the underlying investee companies within a Deepbridge EIS do not fall in value (Deepbridge EISs are designed to generate growth, rather than to maximise loss relief), investments can go down as well as up and investors may not get back the full amount invested. Losses from individual EIS investments can be mitigated as loss relief is available on each individual holding. So, investors can claim loss relief if shares in one company fall in value, even if the other shares in the investor s EIS portfolio increase in value. Investors can set loss relief against CGT or income tax, depending which is the most beneficial for their personal circumstances. 9

10 RISKS Your money is at risk As with any investment, the value of shares can go down as well as up and investors may not get back the full amount invested. Investors should be aware that investment in smaller unlisted companies (including EIS qualifying companies) carries with it a high degree of inherent risk whether or not it is done via a diversified portfolio, regardless of any tax advantages which such an investment might carry and/or regardless of any steps taken to attempt to mitigate that risk. Investment in the Deepbridge EIS should therefore be considered a high risk investment. Long-term investment EIS shares are often held in unlisted companies, from which investors might only be able to exit via a refinance or company sale. EIS shares must be held for at least three years in order to qualify for income tax relief. If shares are sold prior to being held for three years, any claimed income tax relief will have to be repaid. EIS investments should therefore be considered as a medium-term or long-term investment and investors are unlikely to have access to their capital during the investment period. Tax Rules may change EIS tax reliefs are specific to an individual s circumstances. Tax rules may change and companies may not always be EIS-qualifying. If a qualifying company fails to meet the requirements of EIS legislation, tax reliefs may be withdrawn and investors may have to repay rebated tax. HMRC may change the rules on EIS tax relief at any point. 10

11 USEFUL NOTES Advice Although Deepbridge can transact business directly with clients, it is always recommended that clients consult their own independent financial and tax advisers regarding their particular circumstances. Experience It is important to understand who is managing your EIS on your behalf. Although returns cannot be guaranteed and past performance is not a guarantee to future success, understanding who will be looking after your investment and overseeing the investee companies can provide reassurance that your money is in the most appropriate care. Eligibility Deepbridge EIS are designed for UK taxpaying individuals who are seeking an attractive, longer-term investment opportunity, have an income tax liability, have large capital gains to defer or have an IHT liability. Limits Deepbridge only accepts individual investments in excess of 10,000. The amount of income tax relief an individual can claim is limited to 300,000 for each tax year, but claims can be made relating to both the current and previous tax years. Therefore, the largest EIS investment on which income tax relief can be claimed is 2 million, which could generate a total of 600,000 of tax relief. Own business investment Individuals cannot claim tax relief on an investment if they have a financial interest in the company, own more than 30% of its shares or are a partner, director or employee. Investment structure EIS buy shares directly in the investee companies rather than owning units in a managed fund. Death If an investor dies, even within the first three years of holding an EIS investment, their estate may not have to repay any claimed income tax relief. Also, there will not be any capital gains tax payable on any growth the shares achieve. EIS investments are eligible for 100% inheritance tax relief if held for two years prior to death and held on death. If tax on capital gains has been deferred via the EIS investment this tax liability is negated on death. 11

12 Deepbridge Advisers Limited Herons Way Chester Business Park Chester CH4 9QR Deepbridge Advisers Limited is an appointed representative of Sapia Partners LLP which is authorised and regulated by the Financial Conduct Authority. Deepbridge Advisers Limited is registered in England & Wales, company no Registered Office: 5th Floor, 55 King Street, Manchester M2 4LQ. Deepbridge Advisers Limited is a subsidiary of Deepbridge Capital LLP, a limited liability partnership registered in England & Wales, no. OC