EIS GOING FROM
STRENGTH TO
STRENGTH The changes to the investment criteria for EIS has not dampened the entrepreneurial spirit in the sector, which continues to blossom, says Alex Davies, Chief Executive of Wealth Club
U
ntil recently, more than £500 million was invested in conservative EIS funds every year. These funds were filled with predictable, usually asset or contractbacked investments such as crematoria, pubs, wedding venues, film projects or, whilst it was allowed, renewable energy. The deal was straightforward. Put in £1, get 30p back in tax relief. Then hopefully in three years’ time get at least £1 back and, all being well, perhaps a bit more. The Patient Capital Review of 2017 sounded the death knell for those types of fund, leaving a hole of more than £500 million each year in the process. The actual impact cannot be quantified just yet, as EIS fundraising figures for the first year of investment under the new rules have yet to be released. When they are, it is likely they’ll show EIS business is down, maybe even significantly down. Is that a blip or the end of EIS as we know it? Has demand waned? Can the hole be filled? And, most pertinently, are the remaining and new EIS funds any good?
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GB Investment Magazine · September 2019
When you look at what drives demand, it stands to reason it can only head one way – up. Yes, the uncertainty around Brexit is having a shortterm dampening effect. But long-term structural changes such as pension restrictions, increased taxes on dividends and buy-tolet have driven – and will continue to drive – wealthy investors to EIS and VCTs. Not only that. I suspect those changes will push an increasing number of new investors to come into the market making it more mainstream, especially once the market matures and develops a track record of consistent and decent exits. Investing directly into young, potentially fast-growing businesses is an exciting and tangible exercise. In many ways it is far more engaging and easier to comprehend than investing in the large super tanker companies which make up the main stock market. The popularity of crowdfunding amongst younger investors stands as evidence.
