In the Autumn Budget, chancellor Philip Hammond announced his plans to unlock more than £20bn of patient capital investment to finance growth in innovative firms via the EIS.
Hammond claimed that the amendments to the scheme will effectively double the “knowledge intensive companies, while ensuring that EIS is not used as a shelter for low-risk capital preservation schemes”.
However, these changes have raised concerns for many in the investment industry.
After Hammond’s speech, Neil Moles, managing director of Progeny Group, was left feeling that the current government needs to “start implementing progressive change” and that rather than providing a helpful solution, the changes to EIS will complicate matters further.
“The underlying problem is that the tax system in the UK and in other developed countries is far too complex,” he said. “The internationalisation of wealth means we have uneven tax regimes. This won’t change until the government grasps the nettle and simplifies the UK tax code, and then pioneers its coordination on a global scale.
“Although doubling the EIS investment limit for particularly innovative companies may look positive, it just adds another layer of complexity. If the chancellor really wants to minimise abuse of the system he should simplify it not complicate it.”
The changes under the EIS allow individuals to invest up to £2m a year, provided £1m or more is invested in at least one knowledge-intensive company. This provides approximately £60,000 in tax relief.
However, HMRC data from October 2017 found that only 150 individuals used the existing £1m allowance in 2015-2016.
This is one of the reasons Tracyann Kneen, senior product technical manager at Nucleus, described Hammond’s reforms as an “unexpected move” which “instead of cutting the tax benefits”, “offers a very generous tax advantage to a relatively small group of individuals”.
Darius McDermott, managing director at Chelsea Financial Services, agreed that hardly any of his clients will benefit from the increased allowance.
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