EIS Industry Report 2018/19

78 79 CONCLUSIONS REPORT CONCLUSIONS SUMMARY OF OUR FINDINGS 1. TAX RELIEF PLAYS SECOND FIDDLE With the newly increased risk profile of EIS, investors and advisers should focus less on its tax benefits. Although loss relief, Income Tax and CGT relief are available, the underlying investments have to stand up in their own right. EIS investments cannot be approached with the sole purpose of obtaining tax relief, as the risk profile of these early-stage companies is simply too high. However, with increased risk comes the potential for growth. There are investment managers in this space who have incredible expertise, and the ability to select companies that could generate significant returns for investors (with the added benefit of not having to pay CGT on the gains). 2. INVESTORS HAVE TO BE IN FOR THE LONG TERM EIS truly is a long-term investment vehicle. Although Income Tax and CGT relief can be obtained by holding the investments for three years, the reality is that most early-stage investments will take five to eight years to exit. Investors and advisers have to align themselves with this mindset. Gone are the days of capital preservation where a planned exit strategy may have been in place. Investors also have to take on a portfolio approach to EIS investing. Some of the companies are likely to fail at the start of the investment journey. The portfolio needs time to stomach these losses, and for the winning companies to grow exponentially. This really is a true Venture Capital investment, with the added buffer of tax relief . 3. RULES UNLIKELY TO CHANGE DRASTICALLY The risk profile of EIS has clearly risen significantly since before the 2017 Autumn Budget. EIS has returned to its original purpose of supporting innovative UK scale-up businesses. This is a good thing, as it gives the Venture Capital Scheme renewed legitimacy. The rule changes should also improve confidence among investors and advisers alike. EIS is unlikely to be drastically tinkered with in subsequent Budgets. Investors should feel secure in their investments having government support. EIS is a fantastic vehicle for supporting UK businesses, and the government is unlikely to rock the boat, considering there are potentially turbulent years ahead for the UK economy surrounding Brexit. TAX