NEW RULES, NEW ERA FOR EIS New rules have changed the EIS landscape but don’t believe that means there are fewer opportunities
T
he EIS industry has been through a transformative year that has impacted inflows but it doesn’t mean that adviser interest is waning, quite the opposite.
preservation business, HMRC used the subsequent Autumn Budget to move EIS back to their original purpose: investing in higher risk start-ups that benefit the UK economy.
In the tax year 2016/17, a total of 3,470 companies raised a total of £1.7 billion through EIS, which are the most up-to-date figures HM Revenue & Customs (HMRC) has.
This included an enhanced regime for ‘knowledgeintensive’ companies and investors, who can invest up to £2 million a year in EIS companies as long as £1 million of the total is in knowledgeintensive companies.
Unsurprisingly, the 2016/17 total was a drop on the previous year’s £1.9 billion raised by 2,260 companies, as the EIS industry battled a number of uncertainties. Considering the changes that have happened in EIS and the clampdown on funds offering capital preservation rather than growth, the 2017/18 figures are likely to report a further tick down, according to Mark Brownridge, Director General of the EIS Association (EISA), speaking at a GB Investments Magazine round table. ‘I suspect [the numbers will] be down to about £1.4 billion,’ he said. ‘Significantly down from the year before, and the year before that.’ ‘2016/17’s £1.8 billion was a high figure, so we’re regressing back to where we were before.’ There have been widespread concerns that funds will want to raise less money and find it harder to invest under the new rules governing EIS. Following the government’s Patient Capital Review that showed EIS was funnelling too much money into low-risk capital
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GB Investment Magazine · September 2019
While the industry is slowly adapting to the changes, it is not surprising that inflows have dropped slightly given that some funds are tweaking their investment portfolios and others are concerned about whether they now have suitable companies to deploy money into. Brownridge does not expect the slowdown in inflow to continue. ‘I think it’s a bit of a one-off, at least that’s what I’m hoping,’ he says. ‘It proves the point about why the government has stopped this type of [capital preservation] product, as it seems to be where the problem lies. ‘It shows that you can’t invest in a low-risk manner.’ Although the overall EIS inflow figure is likely to be lower, Fabian Bullen, Senior Partner at wealth management firm St James’s Place, says investors are still willing to place their money into taxefficient investments.
