The Government has said that it will reform EIS in 2020.
The new HMRC approved fund structure will be targeted at knowledge-intensive investments and will retain its current nominee structure.
The announcement was made within a paper published alongside the 2018 Autumn Budget which follows an industry consultation on how to finance growth in innovative firms.
The new approved fund structure will feature:
- a new requirement that at least 80% of funds raised must be invested in knowledge-intensive companies will be introduced;
- the time period over which approved funds must make their investments will be extended from one year to two. Funds will be required to invest at least 50% of each raise within the first 12 months, and to keep that monies not yet invested in cash;
- a carry-back rule will be introduced so that investors will be able to set their relief against income tax liabilities in the year before the fund closes;
- approved funds will be required to submit annual statements to HMRC to demonstrate that they continue to meet the relevant conditions.
It had been decided not to introduce relief at the point investors contribute to the fund, said the Government, because this “…would be a fundamental change to the entire structure of the EIS as the market continues to adjust to the PCR changes.”
It went on to say that: “The objective of providing these additional flexibilities for EIS funds through the new approved structure is to ensure additional patient capital reaches knowledge-intensive companies. The government also encourages new fund managers and angel groups to enter and develop expertise in knowledge intensive sectors.
“This new approved fund structure is intended to work alongside the other changes announced as part of the government response to the PCR. As outlined in that response, the government will continue to monitor the market and will take action against behaviour not in the spirit of the Venture Capital Schemes where necessary. As with all tax policy, the new approved fund structure will be kept under review.”