27 February 2019, 3:44pm
EIS offers potentially significant income tax and capital gains reliefs: an appealing proposition for any investor. However, with the current shortage of EIS investments offering income tax relief carryback (to 2017/18), investors are having to look harder.
But that doesn’t mean the funds aren’t there – investors just need to know where to look.
The carryback facility allows investments to be treated as if they were made in the previous tax year. EIS investors can claim 30% of the value of their investment against income tax, with all (or some) of the investment being set against the tax bill for the previous year.
The EIS carryback provision is especially useful for investors who have seen a peak in income in the previous year. This remains an attractive option because investing and carrying back doesn’t create a delay on tax relief – it’s the same as when an investment is made in the current year.
When the government introduced new rules to the EIS sector last year, it did so to ensure the funds went back to their roots, supporting high-growth, high-risk entrepreneurs. This has resulted in a shift away from schemes that are deemed ‘risk free’ towards genuine ‘risk capital’.
As Richard Hoskins or Kin Capital explains: “The Patient Capital Review has moved the market away from EIS Funds that are essentially ‘structured’ tax planning products, back to the spirit of what the rules were designed to encourage; investment in genuine growth businesses.”
He continues: “However, what many advisers have yet to pick up on is that growth EIS Funds operate in a different way to the products they have leaned towards historically. With relatively few exceptions, growth EIS Funds take 12-18 months to deploy capital. This makes them far more difficult to use as tax planning tools, given the uncertainty around the timing of the tax advantages and their linking to a specific investors tax situation.”
Consequently, carry back choices are beginning to shrink. With the move away from asset-backed investments like crematoria and pub chains, which offer steady returns but minimal growth opportunities, investors are presented with fewer options.
At Kin Capital, we have three funds that can help with carrying back to 17/18 if you are looking for solutions in the next few weeks.
Fuel Ventures EIS Fund focuses on early stage technology investment, and as founder Mark Pearson, explains: “We are a fund by entrepreneurs for entrepreneurs, and that’s important to us. As one of the leading early stage investors in UK technology, we are seeing excellent deal flow and have a number of deals in later due diligence stages that all being well are ready to complete before the end of the tax year”.
Imbiba Leisure EIS Fund has a diverse portfolio of bar/restaurants and events-based businesses in central London. Partner at Imbiba Simon Wheeler says: “We’ve just completed an investment in Dream Corporation, a virtual reality concept with the first site opening in Hackney, and have a good deal pipeline leading up until the end of the tax year. This means we are well positioned to help investors who are looking for EIS investments that close before the April 5th deadline”.
Alternatively, if you are looking for something outside of EIS, Startup Funding Club SEIS invests alongside a network of experienced angel investors and the London Co-investment Fund. As Chief Investment Officer Joseph Zipfel describes: “We are the leaders in SEIS investing, having facilitated investments into over 150 early stage companies over the past 6 years. We have a number of high potential disruptive SEIS qualifying British businesses across a diverse number of sectors lined up for investment before the April 5th deadline.”
For more information about investing in either of these funds and to check on remaining capacity, call the team at Kin Capital today on 020 3743 3100.
Please note, with EIS and SEIS investments your capital is at risk and all our products are long term, high risk investments with the potential to lose all of the funds invested. They will not be suitable for all investors. Anticipated future performance projections are not guaranteed and subject to change.The level of tax relief received depends on individual circumstances and may be withdrawn at a later date. Carry back subject to available investment capacity and is not guaranteed. Where capacity is limited, there is a possibility that not all of your investment may be available to carry back to the previous tax year. Kin Capital is unable to give taxation or financial advice and strongly recommends private investors speak with a suitably qualified independent financial adviser.
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