A head start – and a shot in the arm

Sometimes, you just need a bit of head start. England cricket XIs of the 19th century would let opposing teams field 18 or 22 men in challenge matches against them, to even up the contest – long before Sir Allen Stanford enticed the current team to play his West Indies “Superstars” with the promise of $1m-a-man for the winners (although, with many of the “Superstars” having invested their prize money with the match sponsor, it may not be just Kevin Pietersen & Co who have lost out). Golfers will spend hours in the bar boasting about their low handicaps – but will happily take their three extra strokes if it means beating the club captain in the President’s Four-Ball (or taking a few quid off more boastful “scratch” players). And reluctant school athletes have no doubt been encouraged by a 10-yard start in the Boys vs Masters dash – ever since the maths master used Xeno’s paradox to “prove” that the hare could never overtake the tortoise, given the same head start (even if the hare is 10 times as fast, by the time he has made up the gap, the tortoise has reached 11 metres, and so on…).

It’s the same in all aspects of life. Parents who believe a private education offers a “head start” will do everything they can to afford it – one prep school recently reported that half of all parents now ask for a discount, just to keep their progeny in those sports day races (see Page 7). Job applicants who have squandered, or missed out on, such a start in life now make up for it by making it up – a survey this week by the Chartered Institute of Educational Assessors found that one in three candidates lies on his or her CV, inventing qualifications and work experience.

But for investors, it’s not so easy to get ahead. Individual savings accounts only offer a slim tax advantage, now that interest rates are down to 3 per cent or less, and the capital gains tax (CGT) saving has been cut to 18 per cent. Pensions give a longer “start”, in the form of tax relief on contributions, but get caught in the home straight as their income is taxed.

There is one investment, however, that can put you 60 metres down the track in a 100 metre race: the Enterprise Investment Scheme (EIS).

Investing in an EIS gives you income tax relief at 20 per cent, deferral of earlier capital gains tax liabilities, a CGT exemption on growth and 100 per cent inheritance tax relief. So, if you have made taxable capital gains in past years at the old 40 per cent rate, you can invest in an EIS and get 20p in the pound income tax relief, plus a rebate of any CGT already paid at 40p in the pound. Each £1 invested could therefore “cost” you as little as 40p. Admittedly, the CGT is only deferred, so any profit will be taxable at 18 per cent. Even so, that still puts you 42 per cent ahead before you’ve even started.

It’s little wonder, then, that a survey of advisers belonging to the Personal Finance Society found that eight out of 10 consider EIS investments to be “an exciting opportunity”.

Unfortunately, given the technology start-ups that many schemes back, the excitement can seem more akin to having a 42 metre head start on an angry Dobermann Pinscher.

What investors need is an EIS with less risk exposure. So I got something of a start this week when I was contacted by two managers claiming to offer just that – by funding healthcare projects.

Longbow Capital’s Approved EIS invests in unquoted life sciences, health and wellbeing companies that stand to benefit from public sector funding and an ageing population. It identifies many of these through the Boots Centre for Innovation, which it co-founded with Alliance Boots and the University of Wales. By working with the centre, Longbow gets priority access to the investment prospects that emerge.

Oxford Capital’s fifth Gateway EIS also backs new innovations in healthcare, as well as in sustainability and communications – which it deems “super growth” sectors due to the pace of technological advances. Recent successful investment include Oxitec,
a world leader in environmentally-friendly insect control that is working with the Gates Foundation to help eradicate dengue fever, and Glide Pharma, a company enabling fast delivery of drugs and vaccines in solid formulations through the skin.

Neither can be regarded as low risk, or low cost – Oxford Gateway charges an annual management fee of 2.5 per cent plus a performance fee of 20 per cent of the fund’s net return. But both aim to deliver improved levels of health and performance – just the sort of head start that England’s cricketers could do with right now.

matthew.vincent@ft.com