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Tax relief received on shares sold before the end of the respective holding periods may be clawed back by HMRC. The holding period for EIS shares before tax reliefs can be claimed is 3 years, while for VCTs this rises to 5 years. The tax reliefs available for both EIS and VCT are only available on the purchase of new shares issued, not shares purchased from the stock market. Some VCTs do pay dividends to shareholders, and, as the shares of VCTs are listed on the stock exchange, there is a possibility of selling the shares on the market should you wish to cash in. With an investment into a venture capital trust, you are buying shares of the trust itself and do not hold the monetary rights to the shares of any underlying companies invested in by the trust.īecause of this, should an underlying company achieve an exit, or should the value of listed shares held by the trust increase, there is no obligation by the trust to pay out any amount to its shareholders. When the company you’ve invested in achieves an exit, such as its sale to another company, you are paid out the value of the shares you hold at the exit price, minus any performance fees the fund manager charges.

With an EIS investment, which may be made directly to the eligible company, or through an EIS fund, your money is directly invested and you acquire the monetary rights to shares in the companies you’ve invested in.

The most notable difference between making an EIS investment and purchasing shares in a VCT is the structure of the investment itself.

Which companies qualify for EIS and VCT relief?.

Spoiler alert: depending on your level of risk appetite, a combination of both may bring the diversification to your portfolio that you seek. As EIS tax relief can be achieved through direct investment into a qualifying company, or through investing in an EIS fund, we have opted to compare EIS funds with Venture Capital Trusts as they are more direct comparisons. But it’s important to understand the difference between these two approaches to investing in startups, and to choose whichever best suits your investment style, and your budget.īelow we compare and contrast the investment schemes in an effort to help you choose which may be a better fit for your portfolio. In the case of EIS, investors also stand to benefit from additional downside tax relief should the investment not go according to plan. Through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) the UK offers investors unparalleled upfront tax reliefs on investments into earlier-stage, high growth companies.