EIS 2018 report (web)

82 83 THE FUTURE OF EIS THOUGHTS TO CONSIDER AN EQUALISING OF TAX- EFFICIENT SCHEMES? It will be interesting to see whether there will be a move towards the equalising of demand for SEIS and EIS. There is a higher level of tax relief available for SEIS, and it’s worth bearing in mind that the risk profile of SEIS hasn’t been pushed up. The even smaller and less well-known VC scheme, Social Investment Tax Relief (SITR), may also see a boost in capital - as its risk profile has also not changed. With the newly-increased risk profile of EIS, there may be capital re-allocated to tax-efficient schemes that have previously been much more on the fringes of the sector. CONTINUED CLAMPDOWN ON TAX AVOIDANCE The clampdown on what the government deems to be tax avoidance seems set to continue. This is likely to make any ironclad, government-supported tax relief increasingly popular, especially one with initial government endorsement (Advance Assurance) and good managers monitoring continued qualification. That’s great news for UK SMEs. WILL RISK IMPACT FUNDRAISING? When HMRCs next set of fundraising figures for EIS are released (which will look at the 2016/17 year), it will be interesting to see the ongoing effects of the 2015 budget changes, introduced at the end of the 2015 calendar year, which increased the risk profile of the scheme. If there is a dip in fundraising, the intimation could be that there will be a further dip when the 2017/18 fundraising figures are released. Of course, much will depend on how the ‘risk test’ is applied by HMRC, how managers respond in terms of pivoting and the types of deals they target, and how they engage with a broader audience of HNWIs. Be that as it may, if the scheme has now divested itself of any hint of tax avoidance controversy, that can only be a positive for the long term legitimacy of the scheme. STRENGTHS WEAKNESSES OPPORTUNITIES THREATS Renewed government support. High risk profile. Significant potential growth opportunities. Political threat of the scheme rules being amended. Downside risk mitigated by tax relief. Fees are gradually rising. Ability to invest in exciting, growing UK companies. Macro threat to the UK economy from Brexit. Further loss relief still available. Diminishing suitability for retail investors. Investment in companies that are less correlated with major market asset classes. Potential bubble in some eligible EIS opportunities, as capital preservation EIS providers pivot their strategies. Mitigation of CGT. Principles based approach to eligibility creates some grey areas. Potential for IHT mitigation. EIS companies are unlikely to benefit from the European Investment Fund, a regular cornerstone investor, in the future. A relatively small industry, where rigorous due diligence is feasible. Lack of awareness of the scheme. EIS investors benefit from the UK being a centre for innovation. MiFID II’s requirement to alert 10% losses, may put off EIS managers. A solution where pension limits have been maxed out. Relatively complex set of rules, which may put off advisers. Government investment via the British Business Bank, with the potential to become a regular cornerstone investor, will improve the investment case of growing UK companies. The PRIIPs requirement for KIIDs to be produced for all investments will put an extra burden on EIS fund managers. EIS SWOT ANALYSIS OVERVIEW OF EIS S W O T