33
This is not a new concept as other
sectors evidence the practise of
investing in single companies and
integrating them into a consolidated
business for exit or IPO. One example
is the funeral industry which has
seen a number of takeovers of small,
family run businesses by larger funeral
providers such as Service Corporation
International and the Co-op.
68
“The new rules will make sure that EIS and VCT money is used for the growth and development
of investee companies”
David Gauke MP, Financial Secretary to the Treasury
EIS
2015 / 2016
VCT
2015 / 2016
INCOME TAX
MAXIMUM ANNUAL
INVESTMENT
TAX RELIEF
HOLDING PERIOD
ONE YEAR CARRY BACK
DIVIDENDS
TAXABLE
EXEMPT
CAPITAL GAINS TAX
GAINS EXEMPT
AFTER 3 YEARS GAINS EXEMPT
CAPITAL GAINS TAX
DEFERRAL RELIEF
CAPITAL GAINS
TAX HOLIDAY
EIS/VCT TAX RELIEFS COMPARISON
64
Whilst other VCTs and EIS don’t focus
specifically on Precision Engineering
and therefore don’t take advantage of
the potential synergies between sector
companies, they do benefit from a
wider industry diversification across
other industries. Nevertheless, Cyrus
IM argues that this dilutes the full
potential of the Precision Engineering
market – which can still diversify across
sectors such as oil and gas, automotive,
aerospace etc…
The entry level for the first EIS fund
was £50,000, but this has dropped
for the second fund to allow entry
to more interested parties. The EIS
Fund fees are not insignificant, but
fairly typical of the EIS market, with a
2 % Transaction Fee on subscription
(this can be up to 5%)
69
, 1.75 % Annual
Management Charge, 0.65 % Dealing
Charge on purchases and sales of
shares in Investee companies, 0.1
% Quarterly Audit and Legal Fee
and a 30 % Performance Fee over a
hurdle of the minimum target return
of £1.27 per share per £1 invested.
This performance fee is higher
than is generally the case, but this
reflects the specialist nature of the
investments, ensures Cyrus’ and the
investors’ interests remain aligned
and results from the need for on-going
active involvement with the investee
companies to reach the targeted exit.
The company and its lawyers have
looked at the proposed new legislation
in the EIS/VCT sector, and their
understanding is that it requires EIS
investments to provide new working
capital for an investee business
along with a growth strategy which
may include new management,
products and markets. The Cyrus IM
interpretation of this new directive
is that it enshrines the principle of
growth investment which Cyrus IM
already adheres to in its present fund
(Cyrus 1) and both Cyrus Investment
Management LLP and its lawyers are
confident that the continuation of this
strategy in Cyrus 2 will comply with the
new rules.
£1,000,000 £200,000
3
YEARS
YES
YES
NO
NO
30% 30%
30% 30%
5
YEARS
NO
NO
