The EIS and Brexit
A recent survey of EIS providers canvassing their views about the current state of the EIS nation makes interesting reading. The consensus is that for the time being, it’s status quo for the EIS. There is so much uncertainty as to the timing and detail on Brexit that no-one is prepared to make any clear predictions for how they see the next two to three years panning out.
Many are concluding that the warnings about the effects on the UK economy of Brexit prior to 23 June were overstated. As we pull further away from the historic Brexit vote, many are concluding that so far there is little change: stock markets, having dipped substantially in the days following the vote, have now broadly either regained or even surpassed their pre-Brexit positions; and the pound, having dipped some 8%-10% in value, has now regained a substantial part of the deficit. That a lower pound boosts exporters is so obvious it hardly needs stating. It also of course boosts tourism to Britain, which in turn should boost the Leisure & Hospitality sector. Several leading economists are concluding that so far there is very little change.
Changes to the EIS?
There is general agreement that until the UK’s future relationship with the EU is clarified, there is unlikely to be any change to the EIS rules. This has led on to a discussion as to which of the recent EIS rule changes emanated from the EU and which were the result of “gold-plating” by HMRC. We believe that the rule changes which have had the result of re-focussing the EIS on smaller, younger, riskier trading businesses, and away from limited life or capital preservation schemes, have been whole-heartedly endorsed by HMRC. However, some of the specific restrictions introduced within the last year appear to have come from the EU and were not, it is thought, welcomed by HMRC. Three specific examples here are the introduction of the 7-year time limit, the £12m lifetime cap and the “sunset clause”, which will require the EIS to come to an end by no later than 2025.
Some have speculated that there might need to be tax increases introduced in the next budget, presumably the traditional autumn statement towards the end of the year. If that were the case, one would expect demand for tax-efficient investing to increase, if anything.
A number of people are talking up the benefits of “safe haven” investment in infrastructure in periods of uncertainty and there has been more than a whiff of a suggestion that infrastructure projects are likely to be favoured by the new government. Most people are saying that the need to stimulate investment in the enterprise economy is now stronger than ever. Possible boosts could take many forms, possibly an increase in grant levels or research and development subsidies.
Not unexpectedly, there has been a lot of focus on the plight of EU nationals currently employed in the UK. Parts of the manufacturing sector and the whole of the Leisure industry would be severely impacted if the UK failed to provide safe haven status for these EU nationals, regardless of what limits or quotas might be imposed on immigration in future.
The Enterprise view
Here at Enterprise, our house view is that there should be good demand for EIS this coming winter, driven not just by long-term factors such as the ever-increasing restrictions on tax-efficient investment into pension schemes, but also by short-term factors: lots of exits from solar and other renewables investments are due in the coming months, and this should deliver a flow of extra funds into the EIS market. We think investors’ appetite for capital preservation schemes will be greater than ever, and this is an area of the market where there could be shortage of supply. Our current storage and fine wine offers are attracting a lot of interest.
Martin Sherwood has been closely involved in both Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) since their inception and is a founding director of the EIS Association, the official trade association of the EIS industry.
Martin is now a Partner at Enterprise Investment Partners, a venture capital boutique specialising in fund-raising for smaller companies through tax-efficient structures, with a particular emphasis on the EIS and Seed EIS.