Frequently Asked Questions: Investors
Here are a selection of the most common questions investors usually have regarding becoming a Advantage Business Angel.
Why should I invest as a Business Angel?
There are two main reasons you should consider investing as a Business Angel.
Firstly, because investing in new ideas and growing businesses can generate very high returns for you. This is especially attractive to UK investors struggling with low returns on cash deposits, a more risky FTSE and a weak property market.
Secondly, because you may qualify for very generous tax relief – whether or not your investment is successful (see below).
Can I get tax relief on my investments?
Potentially, yes. Many people are attracted to being a Business Angel by the tax incentives available under the Enterprise Investment Scheme (EIS).
In summary, the EIS (and its sister scheme SEIS) provides benefits if your investment succeeds or fails. Let us explain.
Qualifying investments are essentially purchases of new ordinary shares in qualifying companies by individuals, who are not connected with the company, that have been held for a minimum of three years.
Under the rules you get an immediate 30% repayment on the amount you invested (50% in certain circumstances)
If your investment is successful:
- Capital gains are taxed at NIL%
- Inheritance tax is at NIL% if you invest in your children’s names
If your investment is unsuccessful:
- A further tax deduction of 45% (your highest marginal rate) of your net investment is available
Why does the Government give tax relief?
The Government recognises that Early Stage Companies are the main creators of jobs and future wealth in the economy. Despite the current pressure on public sector finances, both the Conservative and Labour parties support this tax relief – and have plans to enhance its effectiveness.
Please note: EIS & SEIS can be complicated. We would strongly recommend speaking to a tax adviser about this subject. More information can be found at the HMRC website here.
How do Business Angels invest?
Let’s face it. There is simply no such thing as a risk-free investment. Even your cash deposits risk losing value over time due to inflation.
Most wealth managers recommend that investors should have 5-10% of their portfolio in this sector. It is true that the risk is higher, but they are different ways to manage it (see below).
What investment strategies can I take?
As an investor with us, you will usually choose from one of these three investment strategies:
1) You focus your investment on a single company
This ensures you have the time to get involved with the company you are investing in. You commit significant amounts of your own:
- Commercial acumen
This is the classic Business Angel approach.
2) You build a portfolio of businesses, often as a member of an Investor Group
Here a group of Business Angel investors get together, and:
- Retain individual control over their investment decisions
- Pool their expertise
Investor Groups are the most common form of Early Stage Business investing in the USA. The USA has the best track record of making money from new ideas. In fact, there are many example of UK inventions where the profits have gone to American investors. (You can probably name a few yourself.)
More and more UK Business Angel investors are working in this way.
3) You invest in a portfolio of businesses using a professional fund manager to select and manage investments on your behalf
This generally suits investors who:
- Want to invest a part of their portfolio in Early Stage Businesses
- Do not have the time to get involved personally
This is not a usual Business Angel approach. But if you have little time to spend, it does give you some investment exposure to this market.
Getting in touch
Advantage Business Angels is always happy to welcome suitable new investors. For your free, no-obligation registration, just fill in this short form.