Can I use a SIPP to invest in an EIS?
I had a great question today from a client who asked “Can I use my SIPP to purchase an EIS?”
For those who don’t enjoy financial services acronyms, EIS stands for Enterprise Investment Scheme. To cut to the chase, the answer is “no” but the question deserves a full explanation.
Enterprise Investment Schemes were introduced by government as a way of encouraging investment in small unquoted companies. The encouragement to invest comes in the form of some quite generous tax benefits.
Investments themselves attract income tax relief at 20%. As long as the investment is held for three years there is no capital gains tax to pay.
It is worth comparing an Enterprise Investment Scheme with another tax efficient investment product – a Venture Capital Trust or VCT – where income tax relief is at 30%.
VCTs have an investment limit of £200,000 whereas an EIS has an investment limit of £500,000.
So the answer is “no” because SIPPs also provide tax breaks and there is no way the HMRC are going to let you have tax relief twice!
Should you invest in an EIS?
The answer will depend on your personal circumstances, goals and objectives, but may lie in the words I used above – “small unquoted companies”, for which read pretty illiquid and pretty risky.
And remember the old adage; “never let the tax tail wag the investment dog!”.