Philip Hammond’s 2018 Budget on 29 October did not prompt a fright for the tax-efficient industry.

No news is good news as far as the industry is concerned, as there had been wholesale changes to EIS and VCTs in the chancellor’s last Autumn Budget.

In the lead up to the Budget, there were murmurings of changes to the annual tax free pensions allowance — which could have increased subscriptions to EIS and VCTs, with wealthier investors having little place to go in terms of tax-efficient investing.

Some pundits had also predicted changes to SEIS, via lowering its income tax mitigation from 50% to 40%, as well as increasing its annual investment limit from a base of £125,000.

However, these predictions did not come to fruition, but there were a few technical changes:

New EIS fund structure

In response to a consultation on a knowledge-intensive company (KIC) fund structure, the government introduced a new approved EIS fund structure. Updated guidance was released to coincide with the Budget.

The new EIS fund structure has the following features:


  • focusing on knowledge-intensive – a minimum of 80% of funds raised must be invested in KICs, reducing the risk of inadvertent non-compliant investment threatening approved fund status


  • flexibility for managers – funds will have two years to deploy capital, with at least 50% of each raise to be invested within the first 12 months, with monies not yet invested held in cash. This improves on previous rules where 90% of each raise had to be deployed within the first 12 months


  • clearer timings for tax relief – investors to be allowed to set their relief against income tax liabilities in the year before the fund closes, where previously this was only permitted in the same year the fund closes


The government will not introduce relief at the point investors contribute to the fund, as this would be a fundamental change to the entire structure of EIS as the market continues to adjust to the Patient Capital Review (PCR) changes.

The new approved fund structure will be rolled out in April 2020. At the same time, the government is withdrawing the current approved fund structure to avoid complication.

The removal of the current fund structure is unlikely to have a significant impact on the EIS market. Currently, there is only one open EIS offer that uses a HMRC approved fund structure.

Digitalisation of EIS forms

Using the new online forms released this month, HMRC will now accept digital EIS1 certificate submissions from applicant companies, and have committed to issuing digital EIS2 and EIS3 compliance certificates to businesses and their investors.

This digitalisation comes as a result of industry engagement and will help to remove reliance on signed paper certificates for investors and fund managers.

The new process should significantly reduce the administrative burden on companies and EIS fund managers.

No updates on IHT

There were no updates to IHT or Business Relief in the Budget, despite IHT being a hot topic in the months leading up to Hammond’s announcement.

However, we expect there to be some changes to the IHT landscape after the Office for Tax Simplification (OTS) releases its review on IHT, later this year.  

Narrowing of Entrepreneurs’ Relief  

Hammond somewhat narrowed the scope of Entrepreneurs’ Relief.

Shareholders must be entitled to at least 5% of the distributable profits and net assets of a company to benefit from the 10% Entrepreneurs’ Relief rate of CGT. This is in addition to the current requirements on share capital and voting rights.  

Hammond also announced a doubling of the minimum holding period from 12 to 24 months to better target this generous CGT relief at true entrepreneurs.

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