Different types of EIS

EIS can broadly be split into four areas:

• Single company EIS
• EIS portfolios
• Approved EIS funds
• Unapproved EIS funds

Single Company EIS

A single company EIS is often the highest risk as it invests in one individual company. An investor's fortunes will depend upon the performance of that one underlying company. Usually unlisted, there will often be no exit route until the company is either floated or sold.

EIS portfolio

An EIS portfolio is generally a managed service that invests in a number of underlying single EIS investments - often up to 20 different companies. It will be professionally managed, normally on a discretionary basis, and EIS relief is available as each individual investment is made and not when the portfolio service is first invested in.

Approved EIS fund

An approved fund will generally have four or more different underlying companies. EIS clearance is effectively received from HMRC prior to the fund launch. This has no bearing on the underlying investments, however it means the income tax relief is given in the year the investment is made by the investor. CGT deferral is not available until the manager has made the underlying investments. An Approved Fund has a requirement to invest 90% of funds raised within 12 months of launch.

Unapproved EIS fund

Similar to the approved fund, the unapproved fund will generally have four or five different underlying companies. Income tax relief is given each time an underlying investment is made. Capital gains can also be deferred each time an investment is made.