Tax relief if you pour cash into

INVESTORS can achieve more direct exposure to British businesses by investing in unquoted firms. But these are a long way from the familiar names of the FTSE100 and an investment comes with big risks.

With that in mind, the best way to invest is via an Enterprise Investment Scheme or Venture Capital Trust. Since these are high-octane options you receive a generous tax boost for your boldness as the Government is keen to get British-born businesses booming. Both schemes are eligible for 30 per cent income tax relief when you invest so long as you hold on to the investment for a certain period (three years for EIS and five years for a VCT). The maximum investment for EIS is £2 million a year, any capital gain is tax free and you get inheritance tax relief after two years. Capital gains from investments in a VCT are also tax free, as are any dividends paid. Shore Financial Planning’s Ben Yearsley says: ‘The rules have tightened up in the last few years and now only back businesses that are looking to grow – this increases the risk for investors but also the potential returns.’

One Enterprise Investment Scheme Yearsley invested in a couple of years ago is the microbrewery Powderkeg Beer, based in Woodbury Salterton near Exeter. The firm was set up by John Magill, a microbiologist who is also head brewer. He has created a range of quirkily named beers including Brainwave, left. Turnover is now nearly £300,000 a year.

Another Yearsley supported was Trefoil, a business that holds a selection of patents to turn waste plastic into wax. Yearsley says: ‘It’s early stage but could be a huge market. It has just produced its first batch of wax to sell on to the open market.’