Solar, the king of renewables technologies, can no longer be invested in by tax-efficient vehicles like EISs and VCTs
Simple to grasp as a concept, Solar was the star performer in the EIS market in recent years, achieving great popularity with advisers and investors on account of its simplicity and its low installation and maintenance cost. Investing in Solar with the benefit of both Government subsidy and tax relief seemed too good to be true. And now it’s gone, but has it?
Not all gone!
Not many people are aware that it is still possible to invest in Solar with the benefit of both the Government subsidy and a degree of tax relief. This can be achieved by making an investment in a company which qualifies for Business Property Relief, which in turn provides exemption from inheritance tax in only two years.
We are still great believers in Solar. The level of subsidy may have been substantially reduced but this has to a large extent been offset by huge reductions in the costs of installation. Just to illustrate this, the highest level of subsidy introduced by way of Feed-in Tariffs in 2010 was 43p for every kWh of electricity generated. This has been progressively cut back and now stands at 4p. On the other hand, the cost of solar equipment and installation has also fallen dramatically. This is from around £4,000 per kW to as low as £800 per kW today. And the industry expects this pattern to continue, with the subsidy being withdrawn completely and installation costs continuing to fall. As a result, there has been little impact on overall returns to investors.
The highly predictable income levels available make Solar an ideal investment for people seeking to preserve their capital. All the while retaining access to it on a regular basis. Once an investment in a solar asset has been made, you are locked into the subsidy. Of which is guaranteed for 20 years and is index-linked. The Government cannot cut the subsidy retrospectively and must follow due process before cutting subsidies for future installations.
Finding the Solar sweet spot
So, what type of solar installations work best? Guinness Asset Managers, our partners in Solar BPR, believe that roof-mounted solar installations are preferable to ground-mounted, for the following reasons:
- There is a factory owner or business user to sell the electricity to. As opposed to selling to the grid, ultimately resulting in higher revenues.
- No grid connection costs since the business premises already has strong grid connections (there is often a cost involved linking ground-mounted installations to the grid).
- There are no environmental or planning concerns – no-one to appeal against your installation!
Please note the tax treatment of the investments depends on the individual circumstances of each investor and may be subject to change in future. The availability of tax reliefs depends on the Company invested in maintaining its qualifying status.
Please note Enterprise Investment Partners does not provide tax advice. We recommend you seek independent advice before investing.
Christian Elmes, Partner
Christian Elmes trained at PwC and qualified as a chartered accountant in 1999. Then, moving to Morgan Stanley (2000-2002) as Associate in the Investment Banking Division (IBD).
He was appointed Director of Finance, Teather & Greenwood Investment Management in 2002 and moved with the Tax Efficient Solutions team to Smith & Williamson in 2004, becoming Deputy head of the department. He left to co-found Enterprise in 2011.
Over the last ten years, Christian has been responsible for developing a number of tax efficient products, particularly Enterprise Investment Schemes. He is able to lead on tax efficient product development from inception through to completion, because of his financial and tax background and commercial experience.
Christian is competent across a broad range of sectors including, leisure and hospitality, media, property and renewable energy.
Christian is a non-executive board member to a number of leisure and hospitality companies, Casper & Cole Ltd, Wright & Bell Ltd, Albion & East Ltd, Camm & Hooper Ltd and Darwin & Wallace Ltd.