Despite the looming prospect of Brexit, the UK remains an extremely attractive place for investors. For those looking to purchase a stake in UK businesses, there are several options available. Let’s assess a few of the more attractive ones.
Community Shares
A community share is a way for local people to support local businesses. They tend to be invoked when a particular business performs an important social function, which might not be reflected in its day-to-day profit margins. For example, a local pub or leisure centre might form part of the social glue that binds a locality. Investors in community shares tend to also function as evangelists for the business in question, rather than disinterested third parties looking to see a large financial return.
Enterprise Investment
The UK government is keen to encourage investment in new start-ups. One of the ways they do this is through something called an Enterprise Investment Scheme. This allows investors to claim tax relief of up to 30% on investments of up to a million pounds. Moreover, capital gains tax can be deferred for maximum tax relief. Downing’s EIS provides a means of accessing all of these attractive tax reliefs, and a few more besides.
There’s a separate category of EIS available for smaller companies less than two years old: the ‘Seed’ Enterprise Investment Scheme. These companies must have fewer than 25 employees and less than £200,000 in gross assets in order to qualify.
Peer to Peer Lending
Peer to peer lending is a way for borrowers to secure funding without going through the banks. It’s done in several different ways, depending on which service you use to connect to peers (the term given to participants, be they lenders or borrowers). Sometimes, funds are automatically divided between many borrowers (and thus the risk is spread). Sometimes, you can pick and choose which investments are most attractive. The risk of an investment will generally be reflected by the interest rate that the borrower is willing to pay.
Of the available options, P2P lending is perhaps the riskiest. This is so for much the same reason that all lending is risky – there’s always a chance that the borrower will default on their loan. The rate at which borrowers do this should be listed on the P2P site. Those borrowing through banks and building societies are protected from a portion of this thanks to the Financial Services Compensation Scheme. With that said, many P2P services provide their own contingency funds, designed to soften the blow if you fall victim to default. It is the responsibility of the lender to research their options. In the UK, P2P lending sites are regulated by the Financial Conduct Authority, which means that they need to keep the business’s money in a separate account.
