In general, the five tax breaks available under the Enterprise Investment Scheme (EIS) make it one of the most attractive vehicles for private investment available in the current environment - 30% up front tax relief, freedom from Capital Gains and Inheritance Tax, unlimited CGT deferral and downside risk as low as 35p in the £1 have to be a winning combination.
However, the overriding key is to pick the winners, with the tax breaks as icing on the cake. Quality of management is probably the single most overriding factor in selecting investments alongside growing market opportunities in an area that you understand.
The EIS has often been viewed as the ‘poor relation' to Venture Capital Trusts (VCTs) but it is interesting to note how successful the EIS has been. Since inception in 1984, the EIS has raised over double the amount under management in VCTs - c. £7.5 bn since inception compared with c. £3.0 bn for VCTs over the same period.
There has been a consequential increase in EIS managers entering the market over the last few years with various offerings. Enterprise Corporate Finance Ltd is a niche Investment Firm that specialises in raising funds for Enterprise Investment Scheme (EIS) qualifying investments by matching high net worth individuals with early stage companies with high growth potential looking to raise finance through the EIS scheme.
Enterprise has been active in EIS since inception, having advised on EIS companies and their predecessors for over 20 years. As well as this finely tuned expertise in the sector, Enterprise works closely with Govt, HMRC, HMTreasury in improving and simplifying the rules to make the Scheme more accessible to the investor and advisers alike.
Far from banging on closed doors, the lobbying has been very successful with the Government embracing the need to improve incentives and to encourage investment in our small cap economy. Considerable effort from both the public sector and the industry has been invested in a new consultation ‘Tax Advantaged Venture Capital Schemes'.
Enterprise's team was at the core of the response to this vital consultation paper on behalf of the official trade body, The EIS Association. Whilst the existing schemes could bear improvement, there were many practical aspects to the consultation including bringing the rules up to the demands of modern times.
Some property backed investments such as nursing homes and hotels have been excluded but these are now back on the agenda.
The lobbying of interested parties has finally achieved serious consideration of increasing the size and flexibility of the schemes.Potential changes, some of which are likely to be implemented in the next tax year, include the ability to raise up to £10m per EIS company, employ more than 250 employees as opposed to the current 50, and to invest in companies with gross assets of £15m, compared to £7m currently, which will allow more mature companies to be eligible.
In the meantime, the EIS is flexing its muscles as the Government focus on stimulating the best of British, especially with innovation: whilst we may not manufacture as we used to, we do invent - the lowly rubber band, the lawnmower, polyester, the Christmas card, pencils, the first SMS message, DNA fingerprinting, the microchip, turbines, and the submarine.
Our technology brains are some of the finest in the world and the EIS now allows globalised business models to put British companies on the map provided that they have a base here in the UK and contribute to our tax regime.
Enterprise Corporate Finance has a response, in report form, to the HMRC consultation paper regarding the simplification of both EIS and VCTs. We will also be producing another report on the 1st December Finance Bill. This informed industry analysis should support your research and assist with updating your choices about current and future tax efficient investments.
EIS and VCTs will continue to provide exceptional tax benefits. With our report and newsletter updates, you will be provided with relevant news, policy updates and tax efficient opportunities in today's EIS and VCT investment market place.
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