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EIS changes seen as boost for new technologies and innovative industries

23 November 2017

Chancellor Philip Hammond has doubled the Enterprise Investment Scheme investment limit, in a bid to encourage more investment in knowledge-intensive companies. 

This will see the limit on the amount an individual may invest rise from £1 million to £2 million in April 2018, earning investors up to as much as £600,000 in tax relief. The treasury estimates that 4,000 investors a year will benefit from the increased limit.

The announcement is part of the government’s Patient Capital Review, designed to support small businesses by stimulating growth.

In addition, Hammond pledged to raise the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs to £10 million from the current £5 million. The lifetime limit will remain capped at £20 million.

Mark Brownridge, director general of the EIS Association, dubbed the move “a huge vote of confidence from the government” and said it was testament to the government’s recognition of EIS to help companies start up and grow.

Brownridge said it would supercharge the UK into a leading worldwide power in the development of new technologies and innovative industries.

He commented: “The EIS Association and its members put a great deal of work into making detailed representations to HM Treasury in the run-up to this budget. We did so because there had been suggestions that wide-ranging changes to EIS were under serious consideration. We are therefore extremely pleased to see that no changes to EIS tax reliefs or holding periods will be introduced, nor will there be any new exclusions for certain sectors.

“We understand that within a consultation paper to be made available very soon, a principles-based approach to assessing whether companies applying for EIS funding eligibility are genuine ‘risk’ investments, using a ‘reasonable person’ test, will be introduced. Pending sight of the detail in the document, we see this as a sensible way forward for ensuring that EIS investment is only directed at genuine, entrepreneurial, growth businesses.

“All in all, at first glance, today’s budget seems to be good news for EIS and SEIS, for start-ups, growth companies and entrepreneurs, and for investors in these companies.”

The Chancellor also said the government would seek to crack down on investors using the schemes as a shelter for low-risk investments, and will introduce a new test aimed at reducing investments used for capital preservation as part of the finance bill.

Tracyann Kneen, senior product technical manager, Nucleus commented that the doubling of the individual investment limit in a tax year up to £2 million was “an unexpected move” which “offers a very generous tax advantage to a relatively small group of individuals”.

 

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