In light of the recent Patient Capital Review (PCR), and next week’s Autumn Budget,  Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) providers are concerned that their industry could be under threat.

Perhaps the greatest impact could be  that next week’s budget will target asset-backed investments, and remove them from permissible EIS and VCT allocations.

These were some of the key talking points at Intelligent Partnership’s EIS and VCT showcase at the London Stock Exchange on 14 November. The event, which is a genuine chance for advisers to compare managers, was a valuable opportunity for more than 100 industry participants who attended to voice their views.

How the industry could “pivot” in the face of potential adversity

Guy Tolhurst, Managing Director at Intelligent Partnership, asked the panel of eight fund providers how well they thought the industry could “pivot”, especially if funds are focused on asset-backed investments.

Laurence Callcut, Partner and Head of Sales at Downing, said: “We can react very quickly. When the ability to put renewables into VCTs and EIS was abolished,we didn’t see the industry collapse, and there was a lot of money going into those areas.Some people think it’s a foregone conclusion that asset-backed investments will go.”

Louise Farley, Partner and Head of Business Development at Deepbridge, suggested that the industry needs to take more responsibility for providing growth-based investments.

“It’s about doing your own sense check,” she said. “The tax reliefs are around for a reason. If you’re going to be looking to de-risk an investment, then why, really, should you get a tax relief on top of that?”

Josh Knight, Partner at Mariana, said that even if there are changes announced in the budget, the industry will have ample time to implement them.

“If you look at nearly all of the legislative changes that have happened affecting the EIS and VCT market, including renewable energy changes, energy generation or reserve power,the rules might be discussed in the budget,” Knight told the audience. “But they are more likely to take effect in the new tax year, which gives providers a chance to deploy their funds.”

Gordon Pugh, Senior Business Development Manager at Blackfinch, said that any changes shouldn’t be a concern for investors who have allocations to EIS funds.

Pugh explained: “In the past when the rules were changed, they didn’t change the rules retrospectively because they probably knew that these investments, on the face of it, counted as being illiquid investments,so now they don’t want to give investors that problematic stance as well.”

Will Fraser-Allen, Deputy Managing Partner at Albion Capital, said:If we find ourselves only able to invest in innovation and growth, importantly, the rules have been steadily moving us in this direction since the end of 2015, with the start of getting European state aid approval.”

Brexit: balancing threats and opportunities

Kealan Doyle, CEO at Symvan Capital said: “In terms of legislation, Brexit has almost no impact. However, from our perspective as a technology fund manager, I think there’s an indirect negative impact, depending on the deal that gets struck. It could restrict talented people coming to the UK.”

James Faulkner, Senior Manager, Wealth Managers & Advisors at Oxford Capital, said:Uncertainty is no good for anyone, and that will have an indirect effect.”

Faulkner added: “As we come out of the EU we may be freed of some of the state aid restrictions.We may be able to invest more money into later-stage businesses as they grow. We want to put more money in, and we haven’t been able to. If there’s an opportunity to expand some of those restrictions, then that will be a positive thing.”

Predicting changes to tax relief

Although much of the debate during the morning focused on underlying investments of EIS and VCT funds, Tolhurst posed the question of whether tax relief would be withdrawn.

Farley said:I don’t think there’ll be any changes to the tax relief. There’s a lot of lobbying to increase the amount that can be invested into SEIS companies.”

Knight agreed:I don’t think there will be any changes in terms of the tax relief. There’s possibly going to be an extension of the minimum holding period for EIS, so that it reflects that of a VCT.”

However, Fraser-Allen added: “Most advisors would still look at a VCT if income tax and capital gains tax relief were 20%. That’s our view too and I suspect the treasury will look at that and reduce it.”

As history tells us, no budget is a foregone conclusion. As the details unfold, Intelligent Partnership will be providing timely market-focused analysis of Philip Hammond’s speech next Wednesday.

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