EIS Industry Report 2018/19

FOREWORD DISCLAIMER This publication is not included in the CLA Licence so you must not copy any portion of it without the permission of the publisher. All rights reserved. No parts of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means including electronic, mechanical, photocopy, recording or otherwise, without written permission of the publisher. This publication contains general information only and the contributors are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Neither the contributors, their firms, affiliates nor related entities shall be responsible for any loss sustained by any person who relies on this publication. The views and opinions expressed are solely those of the authors and need not reflect those of their employing institutions. Although every reasonable effort has been made to ensure the accuracy of this publication, the publisher accepts no responsibility for any errors or omissions within this publication or for any expense or other loss alleged to have arisen in any way in connection with a reader’s use of this publication. This publication is based on the authors’ understanding of the structure of the arrangements detailed, the current tax legislation and HM Revenue & Customs practice as at November 2018 which could change in the future. It is not an offer to sell, or a solicitation of an offer to buy, the instruments described in this document. Intelligent Partnership is not authorised and regulated by the Financial Conduct Authority and does not give advice, information or promote itself to individual retail investors. It is the responsibility of readers to satisfy themselves as to whether any arrangement contemplated is suitable for recommendation to their clients. Tax treatment depends on an investor’s individual circumstances and may be subject to change. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Welcome to the fifth edition of the annual EIS Industry Report The EIS landscape has become almost unrecognisable from before the 2017 Autumn Budget. Philip Hammond made wholesale changes to the risk profile of EIS, and shifted the focus purely onto growth capital. This was by no means bad news for the investment community. In fact, the rule changes gave new legitimacy to EIS, and grounded the scheme in its original purpose — to inject capital into growing UK businesses. EIS is one of the UK’s biggest and best established tax-efficient Venture Capital Schemes. In the 2016-17 tax year, 3,470 companies raised nearly £1.8bn of funds under the EIS scheme. What is clear is that the tax relief now plays second fiddle to the investment case of EIS. Investment managers are now looking for truly innovative growth opportunities, rather than investments that merely return investors’ capital. The underlying companies that managers are selecting are now reflective of the new growth ethos. Around half of open EIS offers have a technology focus. This was one of the areas in which Hammond wished to funnel investment, and was reflected in his promotion of knowledge-intensive companies. This is not to say that the tax relief is irrelevant. In fact, the relief mitigates the risk of these high growth companies, whose performance can often be volatile. Advisers can still use EIS to help their clients reduce their income tax bills, defer CGT, enjoy tax-free growth and income, and reduce their IHT liabilities. This comes at a time where we are seeing lower pension limits, rising asset prices and more estates than ever caught in the IHT net. It’s no surprise that we are seeing a growing interest in tax-efficient investments from advised clients. I hope that this report gives you a thorough understanding of the current EIS landscape, and gives you greater confidence in advising on these investments to your clients. GUY TOLHURST Managing Director Intelligent Partnership Editorial John Schaffer Creative Mar Alvarez Estela Alcay Sub-editing Mike Budd John Schaffer Research John Schaffer Katie McCarthy Alan Sheehan Van Li Marketing Michelle Powell Andy Binkiewicz Print Palina Limited Copyright © Intelligent Partnership 2018 ISBN: 978-1-9993343-2-1