HMRC released its annual report on EIS and SEIS investments in July 2015. The report illustrates the remarkable growth in popularity of EIS investments with an increase from approximately £500 million invested annually at the end of the financial crisis, to over £1.5 billion in 2013/14.
This three-fold growth in the popularity of EIS is attributable to several factors:
1. A growing awareness by companies and investors that EIS is an effective means of raising capital and investing; this is down to the generous tax benefits afforded to EIS investments;
2. Theclampdown on aggressive forms of tax planning;
3. The increasing restrictions on pensions tax relief.
A significant factor that will have an increasing impact in the future is that early EIS investment exits are starting to emerge.
HMRC’s report also shows that there is also an increase in the number of companies raising funds through multiple rounds of EIS fundraising. This is illustrated by Figure (B) and shows the encouraging sign of a healthy, maturing market in which more companies are aware of the ability to successfully engage in EIS fund raising activities.
All of this is strengthening the UK economy through job creation and an increase in the number of viable, tax paying businesses.
Dermot Campbell, Chief Executive of Kuber Ventures said “EIS and SEIS are now widely regarded as mainstream investments and are here to stay. The way in which small businesses raise capital has changed forever with banks no longer involved in helping companies in the early stages of their lives.” Campbell went on to conclude, “With the ongoing pensions changes and the decrease in legitimate tax reduction schemes , EIS offers not only excellent investment potential, but also a valuable tax planning tool, with opportunities around Income Tax, Capital Gains Tax and Inheritance Tax.”