Enterprise Investment Schemes- Post budget impact

Dominique Butters

This budget had been greatly anticipated in the Enterprise Investment Scheme (EIS) market and there were many concerns over the outcome of the Patient Capital Review whether this could be the end for EIS schemes as we know them. Therefore, the announcement that there will be changes within the EIS sector was not surprising to anyone in the market and strangely, the changes are largely positive, with increased capital raise allowances for knowledge based companies seeking venture capital (from £5 million to £10 million) and an increase in client maximum investments into these EIS schemes for Income Tax Relief from £1 million to £2 million per person per tax year!

To counterbalance this, there are some changes which might impact current EIS portfolio offerings in the future. The main change is that new investee companies which seek EIS approved status will need to evidence a suitable degree of ‘risk’, as well as growth and development ambitions, in order to eliminate the capital preservation style EIS products which the government see as being ‘against the spirit’ which was originally intended for EIS. This does not automatically rule out EIS companies which own assets, but these companies will need to show that the assets they own will not de-risk the company too heavily, to the point where they are not intending for true growth and development.

The good news is that the changes will not come into force until Royal Assent is granted for the Finance Bill 2017-18, which we would anticipate to be in the second quarter next year (potentially the end of the first quarter). This should mean that where EIS companies already have Advance Assurance from HMRC in place, then capital can still be invested into those portfolios up to the remaining capacity within each of the investee companies, through to the end of this current tax year if still available. EIS companies still raising money under the “old” rules will need to keep a careful watch as the Finance Bill progresses through the parliamentary process in case it speeds up!

This means that for Blackfinch, the current product range is ‘business as usual’ for the foreseeable future, up until Royal Asset or we fill capacity as we are expecting there to be a mad rush of investors trying to get in before the rules change.

During this period, we will be progressing our current product development projects, with the aim of having a product by next summer in the EIS space, which will adhere to the new rules and which we are very excited about!

To conclude, the budget has not made an immediate impact on our day to day business of our current product range, and the great news is that we can continue to raise money for the current Asset-Focused and Media EIS investee companies through to their remaining capacity. Blackfinch sees the government’s commitment to enhance the capital raise limits as a positive and a clear sign that the EIS market is still very much ‘open for business’, although we will have to tweak our product offerings accordingly going forward.

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