Using EIS investment funds for building your investment assets

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For higher rates taxpayers the advantages of investing into a pension are well known. However the amount that you can invest into pensions has been significantly reduced from £255,000 to £50,000 and will further be reduced to £40,000 in the tax year 2014/2015

However  improvements to the Enterprise Investment Scheme EIS means this scheme is now potentially one of the the most generous tax saving investments available to UK taxpayers.

Enterprise investment schemes can be utilised to supplement more traditional pensions and ISAs as a means of saving for the future. Investing in smaller companies must be seen as a high risk strategy however investors in EIS schemes can reduce the risk by picking good fund managers and investing in an EIS fund as opposed to a single company.

The fund can reduce risks by diversifying across a range of companies and different industry sectors so even if some companies perform poorly it is still possible to enjoy good overall investment returns.

The amount of loss relief available means that for the 45% tax payer the maximum exposure to loss is 38.5p in the pound which is a very generous tax allowance and should significantly reduce the overall exposure.

Most importantly lost relief against income tax payment in the year the loss is realised can be claimed against each individual investments and so are not to offset against any gain made from the winning investments within a fund.

As the new rules allow funds to invest into bigger companies with up to 250 staff and gross assets of £15 million and the risks of investing into EIS funds have been reduced further. This does still not make them suitable for risk adverse investors but could be a consideration for some people on some of their overall investment portfolio.

Most importantly investors should seek advice from independent financial advisers who are experienced in this area

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