Research Advice

[bernie]

Hello,

I'm thinking about taking a gamble on Haatch Ventures.

https://www.wealthclub.co.uk/seis-inves ... seis-fund/

I know little about how to research these things. I've read about it on the Wealthclub website, but that's obviously going to paint a rosy picture.

What steps should I take to help me decide if it's worth the punt?

Just in case anyone asks.... I'm not planning to invest a large part of my net worth / annual income. I've already maxed out my ISA and pension. I'm unlikely to need the money again, it's just disposable income.

Thanks,

Bernie.

[wanderer]

I've had a dabble with Haatch and one or two others. There is very little objective research out there, as far as I can tell, so it's a case of going with what you believe and accepting this is a very high risk investment with a bit of a tax cushion to help out with any particular disappointments.

You are right to describe it as a gamble. I think it is no better than that, really.

One issue I have with haatch and which means I've only put a small amount with them is that the fees are higher than typical and involve a big slug up front. Great if they deliver their 10x target multiple, but there are other EIS funds with a fee structure better aligned to investors' returns.

One thing I did do before making any EIS investments was listen to a lot of the "EIS Navigator" podcasts where a lot of the managers of these funds get interviewed. Obviously, it's largely a salespitch but interesting nonetheless and Scott Weavers Wright (haatch) is on episodes 12 and 32 - both of them a good listen. Episode 13 is another really interesting one.

Some of the more recent episodes have calmed my enthusiasm for EIS, so listen at your own risk!!

[AsleepInYorkshire]

Hello,

I'm thinking about taking a gamble on Haatch Ventures.

Hi Bernie,

You shopuld seriously consider putting this money on the 20/1 shot at the next Grand National.

Hello,
https://www.wealthclub.co.uk/seis-inves ... seis-fund/

I know little about how to research these things. I've read about it on the Wealthclub website, but that's obviously going to paint a rosy picture.

What steps should I take to help me decide if it's worth the punt?

I'm considering some extremes here. Perhaps tie yourself to a chair for a week and hope this "urge" is all you have to think about as you feel the hunger pangs increase.

Just in case anyone asks.... I'm not planning to invest a large part of my net worth / annual income. I've already maxed out my ISA and pension. I'm unlikely to need the money again, it's just disposable income.

There are some charities doing some great work. They would be a far better use of your residual wealth.

Those steps

1. Remove the website from your favourites and don't visit it again.
2. Tie yourself to a chair until to feel very hungry and forget all about "a gamble, a punt"
3. Have one small bet on a horse with long odds in the Grand National and see how you feel when it looses
4. Repeat 1, 2 & 3 above until your urge goes away

Take care

AiY(D)

[bernie]

You shopuld seriously consider putting this money on the 20/1 shot at the next Grand National.

That's a long time away. But I've done healthy amount on the World Cup.

There are some charities doing some great work. They would be a far better use of your residual wealth.

Yes I know. I've done that too. If you are interested, these people do good work and donations aren't subject to admin fees as a wealthy donor already covers those:

https://www.akf.org.uk/donate-now/

[bernie]

Thanks for the great tips. I'll make a spreadsheet to compare costs.

Some of the more recent episodes have calmed my enthusiasm for EIS, so listen at your own risk!!

What made you calm your enthuisiasm?

I tried SyndicateRoom last year, and felt a bit conned that the tax rebate comes after their initial charge. I guess I should have read the prospectus in more detail.

[UncleEbenezer]

You shopuld seriously consider putting this money on the 20/1 shot at the next Grand National.

There are some charities doing some great work. They would be a far better use of your residual wealth.

...

For all we know, maybe he puts money into all those things quite separately from the prospect he was asking about here.

I have less spare money than that, but what I do have for a non-mainstream flutter goes in to crowdfunding startups, where I can choose what to support and watch them grow (or otherwise). See viewtopic.php?f=106&t=32920 for one strong theme.

[wanderer]

I tried SyndicateRoom last year, and felt a bit conned that the tax rebate comes after their initial charge. I guess I should have read the prospectus in more detail.

Of the (S)EIS schemes I have invested in, both Haatch and Par Equity are run on that basis - a chunk taken as upfront fees and no tax relief on that element. Irritating.

However, as with the tax relief tail not being allowed to wag the investment dog, sometimes it is worth swallowing higher fees if the product is good. I have put some money in each of these because they seem to have really good access to potential opportunities : haatch in the tech space and Par more in the North/Scottish industrial space.

From memory, Fuel ventures and SFC have no upfront fees and instead take a cut from your future returns. SFC is great at building up a very diverse portfolio very quickly, and one thing you want with EIS is diverse investments. But the tax relief paperwork on modest investments of a few hundred quid each can be a drag. I've yet to submit my tax return for 21/22 because I am still waiting for three EIS certificates for that year from SFC. If they don't get a move on, then....

One area where haatch charges seem particularly unattractive is on single company offers. Their upfront and ongoing charges seem much less appealing to me than, say, Wealth Club, which will often just take 10% of any return beyond 2x. Wealth Club's approach seems better aligned to my own potential returns.

I would never invest in EIS or SEIS via crowdcube or similar; I always want to be investing at the same time and same terms as some more informed professional/institutional investors. There are also some ridiculous companies that have been pushed on Wealth Club. Take care out there.

What made you calm your enthuisiasm?

If I think back to why I put money in these schemes, I overweighted the tax benefits and underweighted the lack of flexibility.

The tax benefits are actually very slow to realise. The initial 30% takes a year or more to come through. That's a year of that money sitting doing nothing.

Then, there's the loss relief.

Part of me worries that this could get withdrawn by Labour - certainly the income tax offset, if nothing else. So whether it can ever be claimed is itself perhaps in doubt.

Then there was episode 63 of the aforementioned podcast. That laid out to me just how difficult it can be to sort out the loss relief and that you could be looking at 10 years or more of waiting for a zombie company to finally die.

This was a new perspective for me. Previously I had imagined that if a company fails, the end would come more suddenly and so I would be able to claim the loss relief against income from employment during my working life.

Now, I worry that if I have to wait a decade, maybe the loss relief will have been withdrawn or, if not, maybe when the time comes I will be on retirement income and won't even have the higher rate income to make the most of any loss relief that is still available.

Of course, the starting point today is that combined the tax relief provides a 60% - 70% ish loss cushion, in theory. But now I look at it and recognise that anything beyond the initial 30% relief may never materialise.

Then there is the lack of flexibility.

I'm a very low frequency trader. I tend to just buy and hold. When I approached EIS I therefore wasn't worried about holding investments for 5 years or more as that's what I tend to do anyway.

However, I now look at the money I have put into EIS and SEIS and I feel differently about it. It is far worse than just a long term commitment; it is a long term, open ended commitment. The timing of any exit is entirely outside of my control.

As noted above, for companies that fail, that can be very long winded and messy. And 10 years is longer than I expected, to be honest. I had been thinking in terms of 5 years. At least with VCTs, there usually is a way out after 5 years, even if it involves a haircut.

And then there was episode 51 of the aforementioned podcast. Most of my VCT and EIS money went in in 2021.So maybe I am one of the idiots the lady on there talks about, buying at the top on ridiculous valuations. We shall see.

Any positives after all that?

I don't mind the risk too much. In fact, it's quite exciting. Some of the investments I thought were hopeless/barking/certain losers are projecting the most success. Some of those I thought looked best are now carrying the biggest health warnings from the EIS manager.

Another reason I feel okay about the risk is because I recognise that even investing in mainstream companies carries big risks. I manage to lose big sums on some companies that might have been considered mainstream or safe in the main market. My holding in BT is down 50% on cost, Direct Line 40%, British Land 40%, Monks 30%, Princess 30%, Regional REIT 45%, HSBC 25%. All of these in ISAs, so no tax relief available - just losses to suck up. On that basis, I think maybe EIS schemes with their tax reliefs look quite attractive - I could be wiped out on EIS and be no worse off than I am with some of those disasters above!

Maybe the inflexibility on timing works to my advantage in the long run. In investments where an exit is planned, all parties including the founders, management and lead investors are working towards optimising the moment to sell and the timing of exit to get maximum value. Its nice to have someone doing that for me. It gives me a strong signal to sell and realise any returns. I will be selling all the investments I have received 30% tax relief on, at the earliest exit opportunity. Hopefully with no CGT to pay. I look forward to those days.

Episode 29 and the related bonus episode of the podcast helped me to condition how I value my EIS investments as part of my portfolio - at nil, except for the potential tax relief yet to be claimed. Any returns above nil will now feel like a bonus. Maybe one of the reasons my enthusiasm has been becalmed is because I've already psychologically written these investments off as being zero value and I just have occasional moments where I think something might turn out better than that.

Unquoted investments are also quite interesting in terms of seeing the journeys that companies go through. And maybe, given enough of a spread and enough time, one or more of them will pay big. However, given my expected lifespan and future earnings/trajectory to retirement, I am unlikely to invest any more in EIS/SEIS. There are too many potential ifs and buts about loss relief and exit timing to make it any bigger part of my own financial plan than it already is.

It will be interesting to see how Labour votes on removal of the sunset clause for EIS and SEIS as that will be indicative of their future approach to EIS/SEIS/VCT investment incentives when they are voted in.

As may be apparent, I've spent a lot of time on all this stuff over the last couple of years. Writing about it is therapeutic. Not many people are interested in EIS and there doesn't seem to be much discussion about it or places where it is discussed; hence my frequent references to the EIS navigator podcast as it is probably the most informative source of information I've found on the subject.

[bernie]

Thanks for your detailed thoughts. It's kind of you to spend so much time replying.

I'm definitely not keen on arduous paperwork either. But for your tax return, do you need to submit all certificates?
For syndicate room, I just followed the steps here (https://www.syndicateroom.com/eis/self-assessment) and it was not too hard. Though I obviously don't know what it is like with SFC.

You also make a good point on loss relief. One of my Syndicate Room investments has lost, but I claim loss relief on it. Yet. It's not for a lot of money as it's a diversified portofolio, so of course I might forget about it.

[wanderer]

The tax relief thing is just about filling out details onto a form. You don't need to send the EIS certificates to the revenue but you do need them to claim the relief.

You can never predict when the certificates will arrive. SFC cite the revenue for the delays. I can believe that, but anecdotally they do seem to affect SFC more than other managers. Maybe it's because of the large number of different investments they make. Whatever, it is about 13 months since I made my last investment and I am still awaiting some certificates. I have about 8 weeks left to go to file my tax return before it is late and if I wasn't hanging on for these certificates it would have been done months ago; that's why I describe it as a drag.it isn't make or break, just an irritant.

I also had one investment get realised early from another manager. A nice return but a consequent loss of tax relief and unexpected capital gain. I notified the revenue of the loss of relief within 30 days, as required. It took 7 months for them to get back to me and tell me how to repay the money. They told me I had to do this within 28 days. Again, I'm not complaining too much, but compared to investing in ISAs or pensions, it's just a faff. I even begin to feel sympathy for SIPP/ISA providers and their admin burden and understand why they deserve a couple of hundred quid a year to manage all this sort of paperwork with HMRC!

[bernie]

Oh dear. You are making it sound really annoying.

Apparently you get 5 years to apply for EIS relief. But I'm not sure how that would work, as if I fill in my year ending 2022 tax return, and receive the tax certificate afterwards, does that mean I'll have to amend my 2022 tax return, or add the relief to another year's tax return?

Frustrating.

Is there a better idea for someone who doesn't want paperwork?

[sinterklaas]

Indeed, you can “carry back” the relief to the tax year before the shares were allotted, so you have some flexibility in terms of tax planning

[wanderer]

Some positive news this morning on the final half hour of the Today programme: Rachel Reeves said that Labour would continue to support SEIS and EIS schemes.

She was much less clear about VCT tax reliefs but that sounded more like she was unprepared for the question rather than a deliberate answer. So hopefully VCT relief stays, too.

[Vulgaris]

Interesting, Wanderer. EIS will be made more valuable by the reduction in CGT allowance. Suppose you invest, £50000 in a managed AIM EIS fund. This invests across 20 stocks and, over the 3 year holding period, half of them double and half of them halve. From experience with Guinness's AIM EIS this is roughly what you should expect to happen, albeit with lots of more variation among individual gainers and losers. Total sale proceeds are £62500 and gains (£25000) are tax-free. In addition, and crucially, there are £12500 of losses, which can be used against gains on other, non-EIS, holdings. If you keep investing year by year you've restored your GCT allowance. If you roll £100000 p.a. you double it. The downsides, compared with VCTs, are the lack of an income stream and that the tax accounting is tedious in the extreme, not least because Guinness sell holdings in dribs and drabs, presumably so as not to move the market. This year's tax return was half an inch thick, most of it CGT computation sheets. The other downside is the large free cash flow needed to play this game.

[bernie]

Interesting, Wanderer. EIS will be made more valuable by the reduction in CGT allowance. Suppose you invest, £50000 in a managed AIM EIS fund. This invests across 20 stocks and, over the 3 year holding period, half of them double and half of them halve. From experience with Guinness's AIM EIS this is roughly what you should expect to happen, albeit with lots of more variation among individual gainers and losers. Total sale proceeds are £62500 and gains (£25000) are tax-free. In addition, and crucially, there are £12500 of losses, which can be used against gains on other, non-EIS, holdings. If you keep investing year by year you've restored your GCT allowance. If you roll £100000 p.a. you double it. The downsides, compared with VCTs, are the lack of an income stream and that the tax accounting is tedious in the extreme, not least because Guinness sell holdings in dribs and drabs, presumably so as not to move the market. This year's tax return was half an inch thick, most of it CGT computation sheets. The other downside is the large free cash flow needed to play this game.

Do you use software to help with the CGT calculations?

[Vulgaris]

Just an Excel spreadsheet and a pile of contract notes.