Millennials most likely to embrace tax-efficient products for early-stage investing

Online investment platform SyndicateRoom announces that millennials are twice as likely to embrace early-stage investing as a means of reaching their financial goals than those aged 51 and up. Over nine in ten (92%) investors aged 18–30 believe a portfolio of diversified early-stage equities would help them achieve their long-term financial goals, compared to just under half (49%) for those aged 51 and above.

Approximately one in ten retail investors have invested in tax-efficient products aimed at early-stage investing in the past 12 months, including Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

Gon√ßalo de Vasconcelos, CEO and co-founder of SyndicateRoom, comments: “Millennials are clearly ahead of the pack when it comes to taking advantage of the benefits that tax-efficient products offer when investing in early-stage companies. This belief in the value of Britain’s young companies and business ideas by those who will control the economy of tomorrow is highly encouraging. The combined growth opportunity and tax benefits available through EIS schemes are highly attractive, and should be a consideration for any investor with a long investment time horizon.”

The research shows that as well as younger investors being more likely than any other age group to have invested in tax-efficient products for early-stage investing, they are also the most knowledgeable age group. Those with over £1m in investments are also more knowledgeable than those with fewer assets and are more likely to see these products as a positive and impactful way to reach their financial goals. Investors surveyed view these tax-efficient schemes as having a positive impact on encouraging early-stage equity investment.

Knowledge gap between different investor types

A fifth of retail investors claim to be knowledgeable of VCT (21%) and EIS (19%) products, with a further 15% knowledgeable of SEIS. The level of knowledge of these products is much higher for those aged 18–30, as well as for those with more than £1m in investments. This knowledge gap among certain investor types suggests that further education on the benefits of these products, may encourage further investments.

Half (50%) of retail investors state that tax-efficient investment products make them more likely to invest. A third (33%) say that these products don’t impact their investment decisions, however 14% claim not to know how these schemes would impact their likelihood to invest.

Gon√ßalo de Vasconcelos adds: “The disparity of interest in tax-efficient investment schemes and early-stage investing among the different age groups and types of investor could simply be down to awareness and knowledge of products such as EIS. Our research shows there is a clear educational gap among those in the older age brackets, as well as those with investment pots below £1m. This means that many retail investors are missing out on the benefits of early stage tax-efficient investment products that well-informed millennials and those with larger investment pots are taking advantage of.”

EIS encouraging early-stage investing

In keeping with their views on early-stage investing, the research also found that those aged 18–30 are more likely to invest in tax-efficient products when gaining access to early-stage companies. Nearly half (49%) of retail investors say tax-efficient products such as EIS are more likely to encourage them to invest in early-stage equities, with three-quarters (75%) of investors aged 18–30 in particular claiming this, compared to 33% for those aged over 51.

In addition, over half (51%) of those with over £1m of investments view tax breaks on income and capital gains as ‘very important’ when considering early-stage equity investments, compared to a third (30%) of those with less than £100k of investments and 34% for retail investors overall.

Commenting on the advantages EIS offers for early stage investing, Rt Hon Mark Field – MP for Cities of London and Westminster, Former Chairman of the All-Party Parliamentary Group on Venture Capital and Private Equityadds: “As the former owner of a successful business, I fully appreciate and understand the need for investment to grow a profitable enterprise. The Enterprise Investment Scheme (EIS) is designed to offer a stimulus for Britain’s ambitious small and medium businesses and provides a burgeoning asset class for British investors. EIS also plays a role in bringing forward the kinds of technological innovations that will be so important to maintaining Britain’s competitive advantage in business and finance on the world stage.

“One of the most attractive attributes of EIS investing is its fundamentally democratic nature. EIS gives power and control to individuals to invest directly in fast-growing British companies, and the chance to share in their success. The scheme has the support of government and SyndicateRoom’s report puts together a strong case for EIS investing.

“With the advent of similar platforms and increasing appetite for risk, EIS investing is becoming more and more popular. I hope the broader finance community continues to work together to nurture this exciting opportunity.

EIS helping investors get on track

The research found that investors that are more knowledgeable of tax-efficient products are more likely to believe that a portfolio of diversified early-stage equities will help them achieve their long-term financial goals. Approximately half of investors with over £1m in investments see EIS (51%) and SEIS (46%) as positive and impactful vehicles to reaching their goals. Over half (56%) of investors in this category feel they are ‘completely on track’ in achieving their financial goals, compared to only 39% of investors with under £100,000.

A fifth (18%) of those with under £100,000 would ‘definitely’ take on riskier investments to get themselves back on track, compared to just 11% of those with over £1m.

Gon√ßalo de Vasconcelos concludes: Many investors are having to look at alternative routes to get the capital growth they need to reach their financial goals, in today’s low-yield economic environment. As part of this move, many are willing to take on additional risk in order to meet their goals. It is hugely important that any retail investor considering an investment in early-stage businesses makes sure they are able to take advantage of the generous tax breaks when doing so, as this can have a material impact on returns and, in turn, lead to them reaching their goals quicker.”