BrewDog shareholders, including those who took part in the brewer’s Equity for Punks scheme, are facing a significant loss as their holdings will be entirely wiped out due to the recent sale of the company.
This deal has seen the US-based beverage and medical cannabis company, Tilray, purchase BrewDog’s UK brewing operations for £33 million.
This amount represents only a small fraction of BrewDog’s previous valuation, highlighting the dramatic decline in the company’s worth.
The Equity for Punks scheme was designed to allow everyday investors to buy shares in BrewDog, but those involved, often referred to as ‘Punks,’ have no options to offset their substantial losses.
Unlike investors in government-backed venture capital schemes, which provide greater protections and potential tax breaks, the Punks in this situation have no such safety net.
Investing in start-ups and scale-ups is often seen as a way to stimulate economic growth and innovation; however, it also carries significant risk.
It’s crucial for investors to be properly compensated for the risks they undertake when supporting such ventures. Currently, investors in Venture Capital Trusts (VCTs) can benefit from upfront income tax relief of 30%, which is set to decrease to 20% starting in April.
In comparison, those investing in the Seed Enterprise Investment Scheme (SEIS) can qualify for an even more generous income tax relief of up to 50%.
Such incentives are designed to encourage investment in early-stage businesses, but the BrewDog situation raises important questions about the protections available to individual investors in other types of investment schemes.
Susannah Streeter, Chief Investment Strategist, Wealth Club said: “The sad saga of BrewDog highlights how investors in start-ups and scale-ups need to do their homework and opt for schemes offering them protection if the investment turns sour.
“BrewDog’s Equity Punks believed they were buying a slice in a company with a bright future, attracted by flashy marketing materials. But many didn’t read all the details in the prospectuses, which did highlight that they risked losing their money.
“Under the crowdfunding scheme, they were also unable to benefit from tax incentives offered to investors in other government-backed schemes, like Venture Capital Trusts, Enterprise Investment Schemes and Seed Enterprise Investment Schemes.
“Such tax reliefs are aimed at compensating experienced investors for the risk they take in investing in small, high-growth companies.
“It’s vital that growing companies can access such streams of funding to give them the opportunity to thrive and help boost the UK economy. But there’s recognition that many fledgling companies will struggle, and by investing in a fund which backs numerous ventures, the risk is spread, given the likelihood that there will be some successes in the pack.
“Right now, investors who back Venture Capital Trusts which invest in UK scale-ups can benefit from upfront tax relief of 30%, and the time is ticking to make the most of the incentive as it reduces to 20% from April. All returns are tax free.
“The 30% income tax relief rate will stay for investors in Enterprise Investment Schemes (EIS). In addition, when you invest in EIS you can also defer capital gains you have made on other investments like shares or property for long as you stay invested in the EIS. It will only become payable once you come out of the EIS, unless you re-invest the money into another.
“The Seed Enterprise Investment Scheme (SEIS), which invests in smaller start-ups, is an even bigger winner when it comes to tax savings. You receive up to 50% income tax relief when you invest and can also wipeout half your CGT bill from the sale of other investments.
“Any gains you make in EIS and SEIS are CGT free and if it goes wrong you can also write off losses against your income tax bill in the year make the loss. So, if a £10,000 EIS investment resulted in a total loss, once you take into account all the tax reliefs, the most a 45% taxpayer could lose is as little as £3,850. On SEIS that amount would be as little as £1,550.
“To keep the tax relief, you must hold a EIS and SEIS investment for at least three years and VCTs for a minimum of five years.
“Experienced investors take a risk when backing the potential growth stars of the future, and anyone tempted to help support fledgling companies should closely analyse any prospectus to make sure they fully understand where they stand if promises do not live up to reality.”
Leave a Comment