OCTOPUS INVESTMENTS – Launch of Knowledge Intensive EIS Fund
Closing date 5th April 2023; Minimum Investment £25,000
The Octopus Knowledge Intensive EIS Fund is now open, with a £40 million capacity. It will close on the 5th of April or when it reaches capacity, whichever comes first. This EIS will be attractive to clients interested in investing in pioneering businesses with high growth potential. Investors will hold a portfolio of fifteen to twenty-five early-stage companies across five specialist sectors, selected by one of Europe’s largest venture capital firms.
The minimum investment is £25,000 and the closing date for receipt of applications and funds is the 5th of April 2023.
The Enterprise Investment Scheme (EIS) was introduced by the government in 1994 to help small companies to raise funds and grow. A private investor investing in an EIS-qualifying company can receive very substantial tax breaks, including upfront income tax relief, tax-free capital gains, and loss relief on each investment that returns less than you put in. They government offer these incentives because smaller businesses that mature into successful, established companies create jobs and stimulate valuable economic growth in the UK.
With the end of the tax year approaching, we feel that this product is worth considering for experienced investors who have utilised pension and ISA allowances and are looking for a tax-efficient solution for investing surplus cash.
The Octopus Knowledge Intensive EIS is managed by Octopus Ventures, a leading UK venture capital team established in 2000, which manages a number of early-stage investments including Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) funds. They had £12.6 billion of funds under management at the end of June 2022 and have a track record of identifying and supporting companies from the start of their journey to household name status.
The Octopus Knowledge Intensive EIS aims to invest in around 15-25 handpicked early-stage businesses, all or nearly all of which will be classified as Knowledge Intensive Companies. These are favoured by Octopus because they develop their own unique intellectual property including things like technology and branding. The UK has produced and continues to produce some brilliant entrepreneurs with game-changing ideas and many choose to work with an experienced venture capital investor such as Octopus to help with growth capital, practical support and an exit strategy. The Octopus team only considers making investments into businesses it believes can deliver returns of 10x on the initial investment (although the target return is lower for follow-on investments).
Last year the Octopus Knowledge Intensive EIS Fund filled to capacity within eight weeks. It is for this reason that we recommend getting your application in early if you think you could benefit from investing in this year’s offering.
Examples of knowledge-intensive companies they’ve invested in include:
- Biofidelity, which has developed a unique blood test for the detection of cancer and genetic mutations. The test can detect DNA abnormalities at an earlier stage than existing diagnostic methods.
- Ufonia, which uses artificial intelligence to perform routine medical appointments. The business is on a mission to free up time for medical staff to focus on the patients in most need.
Please note, these companies are for illustrative purposes only as in reality, every investor’s portfolio is different.
Understanding the risks
EISs are high-risk investments and are usually concentrated around a small number of unquoted trading companies. This means that there may be no market for the shares should you wish to dispose of them, and you may lose your capital.
Consequently, providers recommend that investors to take advice from a regulated professional adviser to ensure suitability of their investment. At Best Price Financial Services Ltd, we offer EIS investments on an advised basis, so this is where we can help.
EIS investments are high risk and providers recommend that investors to take advice from a regulated professional adviser to ensure suitability of their investment. At Best Price Financial Services Ltd, we offer EIS investments on an advised basis, so this is where we can help.
Within our assessment, we will look at your personal tax circumstances, previous investment experience, attitude to risk and capacity for loss to ensure that the product is suitable for your needs. We are fully regulated and authorised by the FCA to provide advice on tax planning products, which means that in the event that the product was not suitable to meet an individual’s needs, the investor has recourse to the Financial Ombudsman Service (FOS) to independently assess the merits of the advice provided. We are required to seek to deliver the best outcomes for our clients and are obliged to carry professional indemnity insurance in this regard. If you were to purchase an EIS investment from a regulated distributor on a non-advised basis, you would not receive the same level of service or the reassurance of FOS protection.
To help compensate for the higher level of risk involved, the government offers generous tax benefits on EIS investments:
- Very generous annual allowance – up to £1 million (or £2 million if investing over £1 in knowledge-intensive companies)
- Up to 30% income tax relief – up to £300,000 per year (or £600,000 if investing in knowledge-intensive companies)
- Tax-free growth
- Capital gains deferral – from other investments
- Inheritance tax relief – the investment can be passed on free of IHT provided it is held for 2 years
- Loss relief on exit – offset any future losses against your income to save income tax
The Octopus Knowledge Intensive EIS been pre-approved by HMRC as a knowledge-intensive EIS fund. This means that Octopus expect to:
- invest at least 80% of the Fund in companies that are knowledge-intensive at the time the shares are issued.
- invest at least 50% of the Fund within 12 months of the date the fund closes, and 90% within 24 months.
Provided certain conditions are met, a KI approved EIS fund allows investors to set their income tax relief against liabilities in the same tax year the fund closes or to carry back to the previous year. Investors in KI funds can expect to receive a single EIS5 certificate once the fund has invested 90% of its capital within 2 years.
Please note that the tax treatment for EIS products depends on the individual circumstances of each client and tax rules may be subject to change in future. To maintain KI approved status, the fund needs to comply with requirements set out by HMRC. Should the fund fail to do so, it will impact investor tax relief.
Please note that tax rules can change and benefits depend on individual circumstances. To maintain KI approved status, the fund needs to comply with requirements set out by HMRC. Should the fund fail to do so, it will impact investor tax relief.
Lowest Advice Fees
We are confident that our fees for providing advice on EIS investments are the lowest that you will find anywhere in the UK. Fees vary across providers but we are confident that the costs to investors, including our advice fees will be lower than any other distributors, including those who offer products on a non-advised basis.
For the Octopus Investments Knowledge Intensive EIS Fund, their initial provider fee is 2% and their annual management charge is 2% + VAT. Our own initial advice fee is 3.0% we will not take any additional annual fees. Please see the brochure and accompanying documents for details of this product and related and ongoing fees. Links are provided below.
Octopus-EIS-OVEIS-KIC-brochure-retail-CAM011639-2112
Octopus-EIS-KIS-terms-and-conditions-retail-dec-2022
Octopus-EIS-KIC-key-information-document-retail-EXC00519-2212
We believe this is an excellent opportunity to add to a modern, balanced, risk-managed portfolio and invite you to get in touch with us to discuss.
Warmest Regards.
Best Price FS Team