Benefits of EIS investment in 2017

Chris Street

30th March 2017

By Louise Misiewicz

What are the benefits of EIS investment in 2017?

Is EIS a better option than property investment?

I was discussing the benefits of EIS (Enterprise Investment Schemes) with a buy-to-let landlord client last week, and it’s clear that as we continue into 2017 EIS is big business.

I was reading in the industry Press last month that over £1bn a year is invested into companies which qualify for the EIS – the Government’s flagship policy for attracting private investment into growing companies.

In return for taking the risk of investing in small businesses, investors are rewarded with a series of generous tax breaks, including tax-free gains and income tax relief equal to 30% of the amount invested.

I wrote a detailed article about the benefits of EIS, which you can review here.

EISs are becoming an important part of a high-net-worth individual’s investment portfolio, and I’m seeing more and more client’s asking about whether EIS might be, in time, a better option than property investment, as the legislation hitting property investors over the last 18 months has been significant.

There are two noticeable segments of EIS investment developing, from what I’ve seen this year.

On one hand, a number of EIS funds invest in traditional venture capital opportunities, such as tech startups or university spinouts.

But many other EIS funds have been structured to invest in different types of assets or projects, including renewable energy installation, pub renovations and care homes.

What is the best investment option for an EIS in 2017?

The second type of EIS, in particular, those investing in energy generation, proved popular with investors last year.

This is because it promised all the generous tax advantages of EIS from an investment that offered a lower risk profile and more predictable returns than investment in pure venture capital.

But all that has now changed. The government has recently introduced new rules, designed to make sure EIS investment is channelled to entrepreneurial companies facing real risks who might struggle to raise finance from other sources. And EIS products investing in renewable energy projects and other forms of electricity generation have been specifically blocked.

Meanwhile other factors, such as limits on the total amount that individuals can put into their pension pots, are creating more demand for a tax-efficient investment such as an EIS.

How are EIS investments going to change in 2017?

The EIS investment market is going to change in 2017, and property investors looking to diversify their portfolios need to be aware of the changes.

There is, according to industry experts, a current scarcity of EIS products with a lower risk profile and more predictable returns for investors. We’re discussing this with our property investor clients now.

Investors might now turn their attention to conventional venture capital EIS investment funds.

There are, of course, other ways in which property investors can save money whilst also enhancing their portfolios in 2017.

One such way is to minimise the amount of Capital Gains Tax (CGT) they are liable to when selling properties this year – I wrote a detailed and useful article here on how to mitigate CGT when selling property that is well worth reviewing.

Selling properties will attract CGT implications, but EIS investment can be used to reduce the tax liability.

How to engage with us

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar.

Please use the redeem code “Article 33” to get 33% off your next consultation call.

If you are looking for a new accountant, then please book some time with us using the below calendar.

Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.

Book a call to see how we can help you.