There are tax advantages for investors in unlisted small companies, including PLUS-quoted and AIM, but, as in any investing, the golden rule is that you should consider the investment case first. If you lose every penny of your investment, tax relief will be scant compensation.

In the next few paragraphs, I will explain the main tax options. See also the website of HM Revenue & Customs (www.hmrc.gov.uk).

The Enterprise Investment Scheme
Under the Enterprise Investment scheme (EIS), some unlisted small companies offer you 20 per cent income tax relief for up to £400,000 a year (2006–7) invested in new ordinary shares, and capital gains tax exemption. You can defer unlimited capital gains tax arising from disposal of other assets by reinvesting your gains in EIS companies. This tax is deferred until the shares are sold. You may obtain income tax relief by way of election for capital losses suffered.
To qualify for the tax reliefs on EIS shares, you must hold them and meet the qualifying conditions for three years. You must be unconnected with the company in which you plan to invest, and it must be UK-based, unquoted, and carrying on a qualifying business, or intended to do so. Barred activities include financing, law, property investment, hotels, gardening and farming.

Inheritance Tax Exemption
Once you have held unquoted shares for two years, they are exempt from inheritance tax.