The enterprise investment scheme is one of many wrappers designed to reduce tax liabilities.
But the UK’s looming departure from the EU prompted debate at the Deepbridge Capital EIS roundtable as to what the future holds for EIS investing.
With Brexit on the horizon, what should advisers be wary of when looking at these investments?
David Craven, ventures managing director at Blackfinch, says: “As we wait for the Brexit outcome, there is a lack of clarity for businesses, including in relation to this area of investment. Alongside UK-focused initiatives, there are currently various European development grants that firms can tap into.”
He adds: “Following any changes made, it will be important that this kind of support continues to be offered to new firms.”
But others are more optimistic about the future prospects of EIS following Brexit.
John Davies, investment director at Seneca, says: “There could be a number of outcomes from the Brexit debacle, ranging from minimal impact to more general impact that a change of government might bring.
“But the fact remains that there will always be a funding requirement for earlier stage [small and medium-sized enterprises] and any reduction in investor appetite would fuel the flames of economic uncertainty as a whole.”
Paul Munn, a partner at Par Equity, notes: “We haven’t seen any reduction in interest from investors nor a decline in the deal flow quality through the debate.
“In fact, during this past Christmas period – dismal for many mainstream market investors – we had one of our busiest periods ever, closing deals worth £4.85m in just two days.”
James Peer, independent financial adviser at Ascot Lloyd, believes more EIS investments will fail to generate positive returns due to Brexit uncertainty.
He warns: “When an economy faces a downturn, it is the smallest companies which are hit the hardest, as they lack the necessary cash flow and access to lending which is often crucial in ensuring a business stays afloat in times of hardship.”
He confirms: “It is therefore reasonable to expect a higher failure rate for EIS investments should we experience an economic downturn as a result of Brexit.”
According to Mr Peer, a failure rate of 20 to 40 per cent for EIS investments is normal “even in a robust economy”.
He says: “We have always adopted a flexible approach to our investment strategy, which is made possible by our strong regional deal flow.
“We will continue to tweak strategy according to the wider economic environment. But until we have more clarity on Brexit, we will continue with our regional and UK-centric approach, where we believe better value can be achieved,” Mr Davies says.