The reality of 0.1% interest rates has been with us for some time, and now Bank of England policymakers have reported that the UK may enter an environment with negative interest rates.

Should negative interest rates come in, banks would have the incentive to lend more by making loans cheaper, but account holders would likely be asked to pay to hold money in a savings account.

While plans for negative interest rates are pending, government bonds are already selling at a negative yield of -0.003%, with investors hoping for the safe haven of government issued bonds paying out to get their money back in three years.

Between negative returns on savings accounts, lower yield on bond holdings, a volatile stock market and a projected dip in property prices, investors don’t have many options to diversify their portfolio in a negative rate interest environment.

However, for High Net Worth investors comfortable with risk, early-stage investing may be attractive.

What is angel investing

Angel investors (aka private investor, seed investor or angel funder) support early-stage enterprises by providing funding and getting actively involved in the business, providing know-how, introductions and strategic direction.  Typically, the amount invested is £5,000-£50,000 per investment.

Why might it be the answer?

Early-stage investments are high risk – previous research suggested that 56% of investments in early-stage companies went bust. This is why experienced angels aim to build a diverse portfolio of 20+ investments and usually look for a 2.5x Return of Investment (RoI).

Initially many choose to join an angel network where investors can pool investment capital and invest alongside like-minded, experienced investors.

Tax relief through EIS and SEIS

To encourage investment in start-up companies the UK government has several tax relief programmes, including the Enterprise Investment Scheme (EIS). This scheme, which makes investing in early stage enterprises tax-efficient, has encouraged £22bn in investment in 31,365 companies.

By investing in an EIS eligible company, angels receive income tax relief of 30% of the amount subscribed for eligible shares. Investors can put in up to £1m per tax year in EIS qualifying companies for the tax relief; this cap rises to £2m if investing in knowledge-intensive EIS companies.

To qualify, companies have to be trading for less than seven years and can raise a maximum of £12m.

Through EIS, angels receive a Capital Gains Tax (CGT) exemption, carry back and loss relief which can be offset against CGT or Income Tax.

Let’s review a hypothetical example: An angel invests £10,000 and the company fails, their actual loss would only be £7,000, given the 30% income tax relief. A top rate income taxpayer paying tax at 45% could claim loss relief on their tax liability at the 45% level i.e. they’re eligible for further relief of £3,150, making their actual loss £3,850.

The success of EIS led to the introduction of the Seed Enterprise Investment Scheme (SEIS), promoting investments in riskier, earlier stage companies.

SEIS allows HNWIs to invest up to £100,000 and receive 50% tax relief on their investment. In order for companies to be eligible for SEIS, they must have been trading for less than two years and cannot have more than £150,000 in previous investment.

Hot investment sectors

Reports from the British Business Bank and the UK Business Angels Association reveal that many investors are still seeing positive returns during the pandemic.

While angels are battling economic uncertainty, around three quarters are optimistic about the market bouncing back within the next 12 months.

Healthcare, Digital Health and MedTech, BioTech, Life Sciences and Pharmaceuticals are the leading sectors in terms of investor engagement during the COVID-19 crisis.

Software as a Service and FinTech have fared well throughout the pandemic and are still attracting a large number of investors.

To help get started there is an array of angel networks that can provide advice and support. Industry-association, the UKBAA, offers an Angel Investment Accelerator designed for those new to early-stage investing.

HNWIs should look for the most active networks; Research body Beauhurst recently published a list of the most active networks in the UK.

Active networks will present a greater array of screened opportunities and connect new investors to more experienced ones.

The best networks cover a variety of regions, sectors and investment sizes, and they’re forthcoming with examples of previous investments, so helping first-time angels make the right choices while growing their portfolio.

With negative interest rates a possibility many may feel it requires a change in investment strategy and angel investing may be the way to go.


Article by Oliver Woolley, CEO and co-founder of Envestors. Envestors’ digital investment platform brings together entrepreneurs and investors across geographies, communities and sectors – creating the single marketplace for early-stage investment in the UK.