EIS garners record-breaking backing yet again!
In our recent blogs, we have been running through the reasons why so many people are choosing to invest their money in the high-risk high-reward Enterprise Investment Scheme. The 30% income tax relief, the potential for tax-free profits (even in excess of capital gains tax allowance), and exemption from capital gains tax (if held for longer than 3 years) being the primary incentives. HMRC have now released their statistics for the 2017-2018 tax year – with these results giving all the more prudence to these claims.
- £1.929 Billion raised under EIS for 3,920 companies – (HMRC estimate this will rise to £2.041 Billion and 4,130 companies as more returns are received) one of the largest raises on record
- £189 Million raised under SEIS for 2,320 companies
- EIS has now raised over £20 Billion since 1994 funding 29,770 companies
- Information and communication sector received 33% of all EIS investment
- More and more companies are raising money through EIS for the second or third time
- 43% of companies raise funding of less than £150,000
- 33,605 investors claimed EIS tax relief in 2017-2018 (estimated to rise to 37,350)
This uptick in EIS investment comes in spite of changes to the qualifying rules that saw many companies excluded from the potential funding source. Since 2015, the government has tightened rules around EIS investing and in the 2018 Finance Act, they introduced a “risk to capital” test that closed off many of the lower-risk companies – in particular, those that are asset-backed. However, the numbers would suggest that the resultant higher risk profile of most EIS investments does not appear to have put off potential investors
The data is similar to previous years, with a steady increase in the amount of EIS investment being observed year on year since 2010. HMRC attributes some of this success down to the increasing involvement, promotion, and expertise of fund managers. There is a noticeable difference in the growing popularity of EIS funding being used for companies second and third rounds of funding, rather than just the first round as has been seen in the past. This lends itself to the belief that EIS is growing in popularity amongst companies as well as investors. With both having had sufficiently good experiences in the first round that they are willing to repeat the procedure.
EIS appears to be a continuing success story – at least from the perspective of the level of funding available for smaller businesses – helping entrepreneurs, startups and scale-up businesses achieve the funding they require. These figures suggest that there is a growing demand for tax-efficient investments, perhaps driven by many of the countries’ high earners being capped out of further pension saving after successive cuts to tax relief.
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