EIS Tax Reliefs help to cushion the blow if an investment does not perform well and enhance the return when a company is successful. This is illustrated by the simple example below, which shows an investment into a single company.
In Scenario 1, the company does not perform well, and the shares are eventually sold at 50% loss on their acquisition price. In Scenario 2, the value of the share’s doubles over the holding period.
Scenario 1 example assumes the investor is able to set off their loss (which, net of Income Tax relief, is £20,000) against income tax at the highest rate (45%). The example does not show the further potential beneficial impact of Capital Gains Tax reliefs or Inheritance Tax Relief.