EIS clampdown in Budget 2017?
Rumours are circulating that the chancellor, Philip Hammond could be looking to curtail the benefits available from the Enterprise Investment Scheme (EIS) in the upcoming budget on 22 November. This would be a blow to many SMEs and entrepreneurs looking for start-up or growth finance.
Currently, you can invest up to £1 million in an EIS in this financial year and receive 30% tax relief. No tax relief is available on dividends but any capital gains are tax free. You can also 'roll over' gains on other investments and put them in an EIS, so long as you hold them for at least three years. When the EIS returns your monies, you will be liable to capital gains tax (CGT) on the original gain but not on any subsequent gain. Holdings in an EIS also become free of inheritance tax after two years, whilst any losses on your EIS investment can be offset against either CGT or income tax.
An EIS is obviously higher risk than most investment options. However, the Treasury has taken the view that some schemes now provide these extensive benefits without too much risk and that there are some abuses of the EIS system. Because of this, it set up the Patient Capital Review to look at the best ways to provide long-term financial support to the UK's budding entrepreneurs. Whilst there may be an element of truth in this in certain circumstances, the danger is that could lead to restrictions on funding for many dynamic start-ups.
Since it was launched in 1993, more than 26,000 companies have received investment through the scheme, securing about £16 billion of funds.
In the 2015-16 tax year, 3,285 companies received more than £1.6 billion through EIS, whilst a further 2,225 received £170 million via the Seed Enterprise Investment Scheme (SEIS) introduced by George Osborne.
Some of the options being considered include reductions in the level of tax relief, increasing the period investments must be held for and tougher rules on qualifying businesses.
There is also concern that venture capital trusts (VCTs) could also be targeted for rule changes.
For more information on this or for help with your financial planning, contact Kellands Corporate.