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HMRC claims investment in Enterprise Investment Schemes (EIS) dropping

July 4, 2017

By Louise Misiewicz

Are you considering EIS in addition to property investing?

Do EIS schemes provide a consistent and stable return?

A buy-to-let landlord client was discussing the merits of EIS schemes with me at the start of the week, and I wanted to see how they’ve been performing overall in the marketplace in recent months. I have written an article on EIS here to show the tax advantages of these types of investments

Many of my property investor clients are also investing in EIS schemes, so I looked at the latest statistics published by HMRC, and the outlook was one that could cause concern for some, but not all, of them.

According to figures released here by HMRC, The amount raised by companies through the government’s EIS has dropped by over £230m. The number of companies seeking investment through EIS has also fallen, according to the research published.

Launched in 1993, EIS schemes allowed investors to claim 30% income tax relief on up to £1m if the shares were held for over three years. On the plus side, there was also no minimum investment amount, and many of my property investor clients utilised this additional investment source in the last decade.

After the shares are sold, any gains are also not subject to capital gains tax, whilst any losses can be offset against the investor’s income tax liabilities for the year. More than 26,000 companies have been through the EIS scheme, raising more than £15bn along the way.

The majority of investments through EIS have been companies raising funds for the first time. In 2015-16, 2,225 companies raised £170m overall. This compares to 2,340 companies in 2014-15 that raised £178m.

The downturn has been blamed by some financial experts partly on changes to the schemes’ eligibility criteria announced in the 2015 Summer Budget.

Companies must now seek their first investment within seven years of their first commercial sale, with a few exceptions. A new cap of £12m was also introduced on the total amount a business may raise through the EIS scheme in its lifetime. Some of my property investor clients have dropped their interest as a result.

What makes an investor sign the cheque on an EIS?

I believe that the multiple changes of these government-backed tax schemes since 2015 has caused uncertainty for small property businesses and individual property investors. It’s been noted by some property sector commentators that the changes appeared to discourage investment in small businesses.

One of the things most noticeable about the HMRC’s figures is the reduction in the number of companies raising capital via EIS schemes for the first time. This, of course, also includes property investors.

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EIS has proved itself over the years to be of considerable benefit to the British economy as a whole as well as offering a significant number of my property investor clients an outstanding and consistent additional investment platform.

I’d even go so far as to state that EIS scheme still represent an important part in giving property entrepreneurs the ability to assist small business growth across the UK in general.

The availability of generous tax reliefs, such as those contained in EIS schemes, is vital for stimulating investment in early-stage property businesses. There are other ways to raise capital, of course, but the EIS scheme remains one of the most consistent investment channels my clients have utilised in recent years.

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How viable are EIS investments for property investors?

I believe that EIS investment schemes can still provide an excellent additional revenue stream for property investors, and I’m still advising my buy-to-let landlord clients to consider investing in EIS this year.

I have written a number of useful articles for property investors around investment and EIS, including:

Allowable costs post the 2015 Budget

Using EIS schemes for CGT mitigation

The benefits of EIS investment in 2017

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