BUDGET: Following Brexit, EIS scheme rules should be relaxed, say investors

by | Mar 21, 2022

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Now that the UK has left the European Union, the Government should relax the rules around the flagship Enterprise Investment Scheme (EIS) in the Budget, says PE firm Growthdeck. The Enterprise Investment Scheme (EIS) encourages high net worth individuals to invest in growing British businesses.

First the Government must confirm in the Budget that it will scrap the ‘sunset clause’ effectively imposed on EIS by the EU. The sunset clause means that the EIS scheme needs to be reviewed and renewed in April 2025. This clause was requested by the EU in order to review the assistance the UK government was providing to UK businesses under the scheme.

Since Brexit, the UK is no longer bound by these EU requirements. Growthdeck says that in this week’s Budget, the Government should confirm that EIS will be made permanent, allowing investors to plan vital long-term equity investment in UK SMEs. Raising funding for small businesses is likely to become significantly more difficult as interest rates rise, making the role of EIS even more important.

Second, Growthdeck says the Government should scrap the EIS rule which prevents investment into businesses that are more than seven years old. The firm says that the seven-year figure is seen as arbitrary by investors and prevents too many businesses from accessing growth capital.

 

Simon Emary, COO of Growthdeck, comments: “Brexit should have freed the UK from red tape restricting the amount of funding we can provide to small businesses. The small business community would like to see the UK Government take advantage of that opportunity.”

“The seven-year rule for EIS serves little purpose but to sharply reduce the number of businesses that can access EIS funding. Closing that avenue to them has long been seen as unnecessary by EIS investors.”

“EIS is a net-positive investment for the Treasury and the UK economy, helping to grow businesses, create high-quality employment and increase the tax base. The decision to extend the scheme indefinitely should not be a difficult one to make.”

 

Total investment in growth businesses under the EIS scheme has reached £24bn since it was introduced in 1993. 32,960 companies have raised money through the scheme, with almost 1.9 million individual investments made by investors.

EIS allows private investors to:

  • Invest up to £1million per annum into fast-growing British businesses
  • Reclaim 30% of the cost of investment against their income tax bill
  • To not pay Capital Gains Tax (CGT) on any gains realised after three years
  • Claim further income tax relief should an investment result in any form of loss
  • Defer capital gains tax due on the sale of another asset by re-investing the gain in an EIS-qualifying company
  • Save inheritance tax on any EIS-qualifying shares held for over two years

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