Autumn Budget 2017: Enterprise Investment Schemes

We view the Budget as being broadly positive on the basis that existing tax reliefs and holding periods for EIS are unchanged.  The reliefs on income tax, capital gains tax and inheritance tax remain in place and this is an important offset to the high risk nature of EIS, where loss of capital is a realistic outcome.  Clearly the Treasury wishes to focus investment in specific areas and in high risk / high growth sectors, which is in line with the spirit of the legislation, but it is important that investors are rewarded for the risks that they are willing to take in supporting smaller high risk companies.  Changes to the advance assurance process and a principles based test will help the Treasury achieve this focus.  Importantly, we believe it will help reduce the current 14-15 week backlog for obtaining advance assurance as it is likely to remove 80% of applications – those for relatively lower risk capital preservation strategies, which are likely to no longer receive clearance.

There has been concern about tax reliefs on relatively lower risk capital preservation strategy EIS, albeit in previous years this money has helped support growth in areas where the Government has encouraged enterprise capital – renewable energy, TV and film production for instance.  Clearly where rules have been stretched, it should be stopped, but there needs to be care that the baby is not thrown out with the bath water.  Film and TV production is a good example.  The significant presence in high skill industries that the UK has built up over the last 20 years since Gordon Brown started to encourage media projects in this country is a big tax earner for the Treasury, so we are pleased to see that media will still be eligible for EIS status even if some of the pre-contracted arrangements will no longer qualify.  London is a global media hub and in a world where we will need to attract and trade internationally we should continue to incentivise high risk activities that support and grow this centre.

Whether doubling of the EIS allowance for knowledge intensive companies will help raise further capital is questionable as most investments in EIS are relatively small and individuals, with deeper pockets, may already invest £2 million using carry back to a previous tax year.  Only time will tell if this measure actually leads to further investment.

Phil Cook

Private Client Partner

 

Comments first appeared in:

FT Adviser on the 23rd November 2017

Investment Week (in print) on the 27th November 2017

Clients are advised that the value of investments can go up as well as down. Tax led investments can be higher risk, longer-term investments that may be difficult to sell within a reasonable timeframe and at ‘fair value’ and so will not be suitable for everyone; They should only be considered once other planning opportunities have been fully explored. The tax reliefs available to EIS and VCT investors are dependent on the companies in which you invest maintaining their qualifying status. Tax treatment depends on your individual circumstances and may be subject to change in future.

Opinions, interpretations and conclusions expressed in this document represent our judgement as of this date and are subject to change. Furthermore, the content is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or a solicitation to buy or sell any securities or to adopt any investment strategy.

Thomas Miller Investment is the trading name of the businesses in the Thomas Miller Investment Group. This note has been issued by Thomas Miller Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number 594155) and is a company registered in England, number 08284862