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Have we seen the top of the EIS market?

By 31st October 2016 No Comments

A new EIS peak

Last week saw the release of the official EIS numbers for the 2014-2015 tax year, which showed the amount raised via the EIS had reached a new peak of £1.816 billion, an increase of 14% over the previous year and bringing the total raised to date since inception in 1994 to £14.2 billion. Like many official figures, the EIS numbers always run about 18 months behind the date, so it’s intriguing to speculate what has happened in the year and a half since 5 April 2015, what is happening right now and the likely out-turn over the next 12 months.

The market in public EIS offers is usually a good indicator of the overall size of the market, and we believe the public offers market in 2015-2016 was some 15-20% higher than 2014-2015. This would seem to indicate that the total EIS market in 2015-2016 could top the £2 billion mark and bring the total raised since inception up to over £16 billion.

But it seems likely the number could go south again in 2016-2017 as a result of the substantial changes to the rules introduced by Chancellor Osborne in the post-Election budget in July 2015. Most of these changes did not take effect until 6 April 2016, so 2015-2016 was in effect somewhat of a “last chance saloon”.

The effect of the changes was to finish off the availability of EIS relief from power-generating Renewable Energy companies, not just in the UK but anywhere in the world, whether or not they are in receipt of subsidies like Feed-in Tariffs; and secondly, to deliver a severe blow to the so-called “Capital Preservation” schemes by giving HMRC considerable discretion in the interpretation of the revised rules.

The effect of the new rules has shifted the focus away from artificial structures in the direction of more genuine trades. In the process, the whole EIS market has shifted up a notch on the risk scale and we believe this is likely to result in lower fund-raising totals in the current year.

A well-known commentator has redefined the EIS market as now consisting of three basic types of scheme, in ascending order of risk: Downside Protection schemes; Growth with asset-backing; and thirdly, pure Growth.

Leading wealth managers are already complaining of a lack of choice in the EIS market this season and it does look as if this year, for the first time in a long time, the amount of available stock will not greatly outweigh the level of demand, i.e. the EIS market could be a seller’s market rather than a buyer’s market.

In the meantime, new advisers are entering the EIS market, driven by the continuing effect of the lifetime cap on tax relief on pension contributions and increasing focus on the EIS as a suitable vehicle for older investors’ tax and investment planning.

Our challenge in the EIS Association is, as ever, to make the EIS easier to access, simpler to understand and to bring it closer to the mainstream of wealth and investment planning. Mark Brownridge, our new director general of the EIS Association commented on the 2014-2015 result:

“This is a fantastic figure that speaks for the success of the scheme in helping UK businesses grow and succeed, while providing UK taxpayers with thousands of attractive tax-efficient investment opportunities. It is win-win for both and the wider economy too.”

Martin Sherwood, Partner, Enterprise Investment Partners LLP

Martin Sherwood has many years’ experience of small company fundraising and in particular the tax-efficient investment market, specialising in the Hospitality & Leisure Sectors. Martin is currently chairman of the four British Country Inns companies and of Halcyon Hotels and Resorts plc, which is in joint venture with Luxury Family Hotels, which he helped launch 20 years ago. He was founder and head of Tax Efficient Solutions, first at Teather & Greenwood (1997-2004) and subsequently at Smith & Williamson (2004-2010), which he left to found Enterprise.

Martin has been closely involved in both Venture Capital Trusts and Enterprise Investment Schemes (EIS) since their inception, and is a founder director of the EIS Association, the official trade association of the EIS industry.

Martin works very closely with a wide range of Hospitality & Leisure entrepreneurs and has a significant network of investors and professional contacts as well as being a serial investor in his own right.

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