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Chancellor Doubles EIS Limits

AUTUMN BUDGET 2017: Philip Hammond has announced plans to double investment limit for tax efficient Enterprise Investment Schemes

Emma Wall 23 November, 2017 | 11:40AM

 

 

Emma Wall: Hello and welcome to the Morningstar Series "Ask the Expert". I'm Emma Wall and I'm joined today by Adrian Lowcock of Architas to talk about the budget.

Hi Adrian.

Adrian Lowcock: Hi.

Wall: So, there were a few changes for investors in the Budget. It was a Budget of investing in innovation, in AI and in tech and one of the ways you can access these sectors is through enterprise investment schemes and Philip Hammond did announce some changes to EISs, didn’t he. What did he say?

Lowcock: So, the big announcement was changing how much you can invest into EISs and this has gone up from £1 million to £2 million. So, it's for those high-net worth investors really, but there was sort of caveat to this. It was only in knowledge intensive companies that this allowance would be increased for and not for everything else. Also, he slightly tweaked the rules for EISs -  the companies that receive EIS funding at the moment are capped at £5 million, but that will go up to £10 million again for these knowledge intensive companies. The total amount that a company can receive from EIS funding will be at £20 million.

Wall: What exactly is a knowledge intensive company?

Lowcock: So, basically you need to use around 15% of your operating costs over a three-year period or 10% every year in three years in research and development or innovation. You also need to have a certain amount of the right type of staff. So, individuals with master's degrees and they’ve got to take about 20% of your staffing requirement. So, it's quite specific actually on that and the whole point again is to support this technological innovation and really get sort of entrepreneurial businesses off the ground.

Wall: It’s a very clear theme in the Budget of supporting that particular sector and for those in the know this may well be a great way to access that particular part of the economy. But for those who are unfamiliar with EISs what are these schemes?

Lowcock: So, basically they are tax incentive schemes as they give you lots of tax relief, 30% tax relief, income tax relief, capital gains deferral, no capital gains on any gains made. So, they are really targeting sort of people to invest in these smaller businesses. You can put in currently £1 million, there is lots of rules about what types of businesses qualify. But they are usually smaller companies, very small businesses and sort of startup companies. So effectively they are wrappers that allow you to invest in very small UK businesses to generate sort of interest in UK smaller companies and those entrepreneurial startup businesses.

Wall: But, not only because of the very high initial investment requirements, but because of the nature of the businesses, that these schemes invest in and support, this is not a scheme that's suitable for everybody is it?

Lowcock: No, absolutely, EISs along with things like VCTs which are very similar they are really for higher net worth individuals those with, who have used their ISA allowances, who have used their SIPP allowances, have a very diversified portfolio and are happy to take on a much higher level of risk. So, this isn’t really for everyone and that’s probably one of the criticisms of EISs and the announcement yesterday, that this is going to be very much for the higher net worth individuals.

Wall: Adrian, thank you very much.

Lowcock: Thank you.

Wall: This is Emma Wall from Morningstar. Thank you for watching. 

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About Author Emma Wall

Emma Wall  is Senior Editor for Morningstar.co.uk