Build a portfolio of private company investments, using the Enterprise Investment Scheme to enhance returns and reduce risk

Transcription

1 Build a portfolio of private company investments, using the Enterprise Investment Scheme to enhance returns and reduce risk Jan 2016

2 Rockpool is an independent firm dedicated to creating tax-efficient investment opportunities for individuals. In the last 4 years, 1,500 people have invested over 160m in Rockpool opportunities. Please read this document and the application form carefully, think about the risks involved in investing in unquoted shares of smaller companies under the Enterprise Investment Scheme and talk to your financial adviser about how Rockpool s EIS Portfolio Service could work for you. If you re ready to invest, please complete the application form. If you change your mind at any time, we will return any un-invested cash to you. You can contact us at any time by calling or by ing team@rockpool.uk.com

3 Introducing Rockpool s EIS Portfolio Service The Enterprise Investment Scheme or EIS offers an attractive package of tax-savings to enhance returns and reduce risk for investment in UK smaller companies. Instead of paying income and capital gains tax today, you could put your money to work in private companies and enjoy potential gains free of tax. The value of your investment could be completely outside your estate for inheritance tax purposes and more than 60% of any losses could be offset against your tax bills. The Enterprise Investment Scheme was refreshed in 2012, with new rules allowing larger companies and shares with preferential rights. In our view, these changes tilt the playing field decisively in favour of investors, so that private individuals can invest directly in private UK companies on a scale not seen in recent times. Our mission is to make EIS investing as straightforward as investing in the stockmarket. Rockpool s EIS Portfolio Service is designed to be tailored to your needs. You can select one or more of two investment strategy options. You can opt for a diverse portfolio or put more emphasis on getting your money to work quickly. You can change these options or add to your investment at any time. Our aim is to make Rockpool s EIS Portfolio Service the most flexible route to tax-efficient investing. There are two ways for you to use our service. The difference lies in who selects companies for your portfolio. Self-select service You are in control. We send you information on each company when it is investment-ready. You tell us how much you want to invest, subject to a minimum of 10,000 per selected company. You are not obliged to invest in any company. We will ask you to transfer funds when you have selected a company. Managed service You give us discretion to build your portfolio. We select companies that match your investment strategy choices, seeking to spread your investment evenly across the number of companies you set for the portfolio diversity. The minimum investment into the EIS Portfolio Service is 10,000 and the minimum investment per company is 2,500. You deposit the amount you apply to invest into the custodian account when you apply. Whichever service option you prefer, we will support and monitor the companies in your portfolio and report to you regularly on their progress. Rockpool s EIS Portfolio Service is a way of investing money that you do not require to meet your foreseeable needs and which you can afford to put at risk with a view to earning higher returns. Your capital will be at risk and there is no guarantee of any investment return. The value of shares may go down and you could lose all of your investment. EIS shares are not listed and this means that you may not be able to sell them when you want to do so. This sort of investment does not provide a reliable source of income. 1

4 Is the Enterprise Investment Scheme right for you? Investing with EIS could be right for you if you answer yes to one or more of the following questions: Have you made a capital gain on shares, property or other assets in the last 3 years and would like to reclaim or defer Capital Gains Tax? By subscribing for EIS shares, you could defer the whole gain. If the shares are still in your estate on death, their value could be passed on free of Capital Gains Tax. You can transfer shares to your spouse with no tax consequences, so if you want to sell shares, you can make maximum use of annual CGT allowances. Do you want to pass on your wealth to the next generation without losing 40% to inheritance tax? EIS shares should normally qualify for Business Property Relief, which means that their value on death would be ignored when calculating the inheritance tax liability on your estate. Do you have significant income tax to pay? You can reclaim up to 30% of the amount you subscribe for EIS shares against your income tax bill for the year in which you invest or the previous year. By reducing the cost of an investment, this rebate can enhance your returns. Do you want to reduce the risks of unquoted investing? If your EIS shares are sold for less than your net cost, you should be able to set your loss against taxable income or gains in the year of loss. If you rolled over a capital gain when investing, the deferred capital gain is reduced by any loss. These reliefs potentially reduce your exposure to loss to less than 40% of your investment. The tax benefits of EIS investing depend on your personal circumstances, on you making the appropriate filings with HM Revenue & Customs and on you not selling EIS shares before the end of the 3-year minimum period defined by EIS rules. They also depend on whether the companies in your portfolio remain compliant with the EIS rules, as well as on tax rates and on complex rules and regulations. All of these could change, removing tax benefits that you expected to enjoy. You might even have to repay some or all of the income tax relief you receive, together with interest. If you defer a capital gain by investing in EIS shares, and tax rates subsequently increase, your liability to capital gains tax could be higher than it would have been at the time you invested. The date on which you receive any tax relief depends on when each investment is made and realised, and not on when you apply to invest. 2

5 Helping hand from the taxman The Enterprise Investment Scheme offers multiple tax benefits to improve your potential returns. Please ask your financial adviser for information on how EIS fits your own tax situation. Here is an introduction to the possible tax benefits of EIS investing. You could reduce the cost of your EIS investment by up to 30% by reclaiming income tax. Imagine that you invest 100,000 in EIS companies. Your potential saving is 30% of cost: 30,000. Save income tax when you invest You could reduce the cash tied up in this EIS investment by up to a further 28,000 by rolling over capital gains made on shares, property and other assets in the last 3 years, because you don t have to pay CGT on those gains until you sell the EIS shares. COST 100,000 EIS SAVING 30,000 Save CGT on sale COST EIS SAVING 28,000 Capital gains from EIS investments are tax free. Imagine that you sell your portfolio for 200,000. Your potential saving is 28% of your 100,000 gain: 28,000. PROCEEDS 200,000 No inheritance tax is payable on qualifying investments held at death and for two years before. Imagine that the value of your portfolio increases to 200,000 and that your other assets exceed the 325,000 allowance for inheritance tax. Your potential saving is 40% of the full value of your shares: 80,000. COST VALUE 200,000 Save IHT on bequest EIS SAVING 80,000 Recoup part of any loss against future tax bills EIS SAVING 31,500 EIS SAVING 30,000 You could offset any losses against your income and gains in the year of loss. If you pay 45% tax, your saving could be 31,500, in addition to the saving of 30,000 when you invested. COST 100,000 3

6 Promoting better understanding of EIS Rockpool is committed to giving investors and advisers the tools they need to better understand the Enterprise Investment Scheme. That is why we sponsor a specially designed website, which you can find at Here are some of the ways in which the EIS Guide can help: Interactive calculators help you visualise how EIS could work for you. You can enter basic information about your personal tax situation and see how this affects the EIS benefits. You can experiment by varying the assumed performance of the portfolio, to see how EIS could enhance the potential returns to you and reduce your exposure to losses. Navigate through the complex EIS rules using a simple One-Page Guide. The whole scheme is summarised in two sentences, and you can click on each technical term to find out more. Graphics make it easy to see how long you must hold EIS shares and to understand the other important time limits. The amount of tax you save depends on how much you invest and on how much CGT and income tax you would otherwise pay. With the maximum tax relief, you could save 58p upfront for every 1 invested. Taking inheritance tax into account, a total saving of 98p for every 1 invested is possible. In fact, the saving could be more than the total invested if the investment grows in value during your lifetime. 4

7 Why choose Rockpool for your EIS investments? Rockpool s network of investors includes many successful entrepreneurs and business professionals with experience in a wide range of business sectors. The experience of our investors gives us access to hidden opportunities, anchors our decision-making and enables us to contribute more to the success of the private companies we invest in. Our services are designed to give investors a unique level of flexibility and control. We do not ask you to commit to a fund and we don t charge you any annual management fees. You can start with a commitment of as little as 10,000, with a minimum per company of 2,500 ( 10,000 if you are a Self-select investor). You can change your preferences or stop investing at any time. We can help you invest in businesses in a wide range of sectors and at every stage of their development. That means you can diversify your EIS portfolio without putting small amounts of capital with a variety of fund managers. We source EIS opportunities for our investors and we guide the companies through the whole process from investment through to exit. We provide regular reports on the progress of each investee company. Our online portal, MyRockpool, gives you access to these reports together with a record of all your transactions and up-to-date valuations of your portfolio. We work with professional advisers and other intermediaries to help their clients understand the benefits and risks of EIS investing. We promise to respect and support the advisory relationship between our investors and their advisers. Rockpool s EIS Portfolio Service makes it easy for you to build a portfolio of tax-efficient private company investments. 5

8 Investment strategy options There are two investment strategy options. You can choose one or combine them. Growth Do you see value in smaller companies? Perhaps you have enough safe investments, and you re prepared to take more risk in order to gain higher growth potential. Growth opportunities typically arise when ambitious businesses come to a moment of change. They need capital to establish or cement a competitive advantage, which could multiply investors capital by 3 times or more over a 5 year period. With full EIS benefits, this would translate into tax-free compound annual growth of 34% or more. For our growth investments the focus is on capital gains. Investment returns often depend on a sale of the company, so timing is hard to predict. The average hold period is likely to be 5 years, with some investments exiting sooner and some later. Our growth strategy may include start-up companies but our intention is that most companies will already have significant revenues and will be profitable or close to profitability. Case study: Airedale Catering Equipment Group installs commercial kitchens in restaurants, schools, and similar properties. Rockpool investors helped management to buy this profitable 18m business from its private owners in Rockpool investors provided EIS qualifying funds to support rapid growth, as part of a 3m funding package. The target return for EIS investors was set at 3.64 for every 70p of net invested cost after 30% tax relief. With revenues up 100% over 3 years, the investment is now expected to out-perform this target. 6

9 Investment strategy options Asset-rich This strategy is designed for investors whose focus is on lower risk and an exit as soon as possible after the 3- year minimum holding period. Assuming that an investment is sold at cost after a 3.5 year hold period, the 30% income tax relief alone would deliver a 10.7% compound annual return. We will often use shares with preferential rights to reduce risk and we select companies with a lower risk profile. A mechanism is built into each investment to incentivise the company to deliver an exit for the Asset-rich shares during the 4th year. The focus is on the total return at exit. Our aim is that investors should receive proceeds of between 1.10 and 1.30 per 70p of net cost, equivalent to between 13% and 18% compound annual growth respectively. Case study: Rivington Construction arranged the construction of a care home under a fixed price contract. Its customer is part of a well-established care home group, which owns the freehold of the site. The company has a charge over the freehold to secure payment of the contract price. The aim is to achieve an exit for investors as soon as possible after the 3-year EIS minimum holding period. The projected return to investors is 1.29 for every 70p of net invested cost and represents a multiple of 1.8 times net cost and an IRR of 18% per annum over 3.5 years. Whichever investment strategy option you choose, your capital will be at risk and there is no guarantee of any return on investment. We may not be able to enough investment opportunities referred investment strategy. 7

10 Portfolio diversity options and further information Portfolio diversity options You may want to spread your investment across many companies, as part of your approach to controlling risk. If diversity is less important for you, you might choose to concentrate your Rockpool EIS portfolio in just one or two companies. Our investment programme is designed to deliver you the opportunity to build a diverse portfolio. If you choose the Managed Service option, please tell us the minimum number of companies you want to spread your investment across. Claiming tax relief To claim EIS tax benefits, you need an EIS3 certificate for each investee company. We manage the process of obtaining this certificate and we will send it to you as soon as possible after the relevant investment is made. We need permission from HM Revenue & Customs to issue the certificate so there may sometimes be a delay that is out of our control. Re-investment If you are using EIS investments to defer CGT, you would expect the deferred CGT to become payable when the EIS investments are sold in the future. It may be more attractive to re-invest the sale proceeds in new EIS opportunities, as this would further defer the CGT. Re-investing may also be attractive as a way of preserving the inheritance tax exemption, which is available for EIS shares that have been in your portfolio for at least two years. If you re-invest within 3 years of each sale, the two-year clock does not restart, so your IHT exemption would be maintained. Please let us know if you may wish to re-invest. You can change your mind at any time and we will consult you before re-investing. Please note that the tax advantages of re-investment and the opportunity to re-invest depend on your circumstances and may not be available if HMRC rules change or there are insufficient new EIS opportunities at the time. Charges Rockpool does not make any charges on investors. Instead it charges each investee company an arrangement fee at completion of the relevant investment and an annual monitoring fee thereafter. Rockpool will normally seek a performance incentive in the form of an option to subscribe for shares in each investee company. Investee companies are also required to pay any introducer fees, typically 3% of the amount invested initially and 0.5% annually thereafter. Safe custody Your money will be held in a custodian account until it is invested in EIS companies or paid to you. Any interest earned on your moneys in the custodian account will be retained by Rockpool. We will pay any fees or costs due for custodian and nominee services arranged by us. Your shares will be registered in the name of a nominee. You will be the beneficial owner of your shares and you will be entitled to request notice of company meetings and to vote at them. Risks Please think carefully about the risks involved with this investment. We have highlighted risks throughout this brochure, but there may be other risks that we have not considered. You must consider risks for yourself. Remember that past performance is no guide to the future. This investment is not suitable for money which you need or may need in the future to meet commitments for yourself or your dependants or to maintain your lifestyle. Unless you have an expert understanding of EIS investing, you should seek independent professional advice before investing. Rockpool is not able to provide you with advice. 8

11 Rockpool makes it easy to build a portfolio of tax-efficient private company investments. team@rockpool.uk.com Tel:

12 This document constitutes a financial promotion pursuant to Section 21 of the Financial Services and Markets Act 2000 and has been issued by Rockpool Investments LLP, which is authorised and regulated in the UK by the Financial Conduct Authority (FCA firm number ). Nothing in this document should be regarded as constituting legal, taxation, investment, or other advice and prospective investors should consult their own professional advisers before investing. If you invest through the Rockpool EIS Portfolio Service, you will do so under the terms and conditions set out in the application form provided by us. This document does not constitute, and may not be used for the purposes of, an offer or invitation to treat by any person in any jurisdiction outside the United Kingdom. This document and the information contained in it are not for publication or distribution to persons outside the United Kingdom. It does not constitute a public offering in the United Kingdom. Rockpool has taken all reasonable care to ensure that all the facts stated in this document are true and accurate in all material respects. Rockpool s registered office is at: 52 Grosvenor Gardens, London, SW1W 0AU. To contact Rockpool, please call or team@rockpool.uk.com