THE GOVERNMENT’S overhaul of enterprise investment scheme (EIS) rules have been welcomed as a boost for the UK’s more innovative businesses.
Delivering his Autumn Budget yesterday, chancellor Philip Hammond (pictured) doubled the annual allowance for EIS investors in knowledge-intensive companies such as technology firms to £2m and said a new test would be introduced to redirect low-risk investment.
Hammond said the test would ensure EIS schemes are not “used as a shelter for low-risk capital preservation schemes”.
There were fears that EIS tax perks – providing 30 per cent income tax relief, 40 per cent inheritance tax relief and capital gains tax deferral for investors – would be targeted in the Budget.
Instead, Hugi Clarke, director of EIS and VCT provider Foresight Group, was happy with the outcome.
“The chancellor’s decision to remove low-risk EIS is designed to refocus these investments away from ‘low risk’ structures and towards innovative companies with the opportunity for growth,” he said.
“EIS has been acknowledged as a key component in supporting these businesses as evidenced by the doubling of investment limits for technology-based ‘knowledge-intensive’ companies.
“Importantly, the changes leave the unique tax advantages of this vehicle in place.”
Industry body the EIS Association, described the changes as “a huge vote of confidence.”
“The doubling of the investment limits for technology and other ‘knowledge intensive’ sectors demonstrate that the government recognises the power of EIS to help companies start-up and grow,” Mark Brownridge, director general of the EIS Association, said.
“We understand that within a consultation paper to be made available very soon, a principles-based approach to assessing whether companies applying for EIS funding eligibility are genuine ‘risk’ investments, using a ‘reasonable person’ test, will be introduced.
“Pending sight of the detail in the document, we see this as a sensible way forward for ensuring that EIS investment is only directed at genuine, entrepreneurial, growth businesses.”