In Focus: Tax Year End  

Why every adviser should offer EIS opportunities to their clients

Modwenna Rees-Mogg

Modwenna Rees-Mogg

The surge of economic activity as we emerge from the pandemic has never been more visible than in today's entrepreneurial market.

There have never been more businesses deserving of funding so they can grow from saplings into oak trees.

We are very privileged in the UK to have the Enterprise Investment Scheme available to investors, which allows generous tax breaks on income tax and capital gains tax when investments are made by UK taxpayers.

It’s little sister scheme, the Seed Enterprise Investment Scheme, gives even more generous tax breaks.

Meanwhile the booming property market last year will no doubt have created CGT liabilities for many.

Our government through the EIS and SEIS positively encourages such individuals to defer these liabilities by investing in EIS-qualifying companies and funds.

Many companies raising capital on the AIM market also qualify and some of the most successful companies on that market started their growth journey by accepting EIS-qualifying investment either before they floated or at IPO.

So with high levels of supply and demand how does it get matched in such a way that investors win?

For the investors who prefer not to invest directly into companies, the answer is to invest in a selection of EIS or SEIS funds, of which there are ever increasing numbers.

These funds are typically managed by venture capitalists and many are now well established with long track records.

From the brand names that many advisers will be familiar with from the VCT world, to a plethora of specialist investors (often with thematic strategies), there really is something for everyone.

I am particularly curious about the most sophisticated thematic funds rather than the generalist ones as their presence now allows investors and their advisers to create more sophisticated fund portfolios.

Frequently, the investment per fund is in the low thousands, so in any one tax year it is possible to allocate, say, £50,000-£100,000 across a healthy selection, to mitigate risk.

But how can you find these funds?

I just searched the internet for a list of “open EIS funds” and uncovered 3.9mn results. You will not need to look through more than a few pages to understand which are best at marketing themselves, but for a curated list advisers can try Tax Efficient Review.

While typically only those investors with a high appetite for risk are suitable candidates to consider EIS investing, advisers can play a critical role in helping them to select the best opportunities out there.

If you are thinking about how to engage these clients and draw them into valuable conversations, a chat about EIS funds can be a smart solution.

And while investors are concerned about how their money is put to work, what engages many of them emotionally is how they can support British enterprise and hopefully back a unicorn.

Modwenna Rees-Mogg is founder of Funding Index, a database listing UK businesses and their funding requirements