Talking Tax
Lately, we have seen rumours swirl around a number of tax options. A Wealth Tax had backers for a while but seems to have lost support. The Independent Wealth Tax Commission (doesn’t sound very independent!) suggested a wealth tax on all individual wealth above £500,000 and charged at 1% a year for five years would raise money from those least affected by the pandemic.
Traditionally, Tory Governments have veered away from these types of tax rises but they are popular abroad. CGT rises have also been mooted, in particular aligning CGT rates with income tax rates. This is a double-edged sword as it would most certainly affect founders and entrepreneurs when they come to exit their business and penalise a group who already get little in the way of reliefs either at the inception of the business or at the end.
However, it probably makes EIS a more attractive investment as investors seek to utilise CGT deferral to invest gains made from other investments. There is also a suggestion that IHT could be in the crosshairs. Again, given EIS has IHT reliefs, this may have an effect on the schemes and given the nature of the recommendations on IHT already made, any changes are likely to beneficial.
EU State Aid
Thirdly, although EIS and SEIS no longer come under auspices of EU State Aid, the schemes are in somewhat of a no man’s land. Whilst the Trade and Cooperation Agreement (TCA) agreed with the EU has a subsidy regime, the EIS and SEIS schemes aren’t classified as subsidies so aren’t part of TCA.
The UK has announced it will introduce its own subsidy regime and are currently consulting as to the best way of doing this. Add to all this that whilst the UK has repealed all EU State aid regulations from the UK domestic law from 1 January 2021, it is necessary to retain them for the purposes of the Protocol on Ireland/Northern Ireland. This keeps Northern Ireland under most EU State Aid restrictions and means any relaxations to EIS and SEIS are unlikely, at least in the short term.
Why is this third point important? The EIS and SEIS legislation comes (or came) under EU State Aid legislation which means whilst we were part of the EU, the UK had to abide by EU legislation relating to the scheme and had no independent mechanism for making any changes we would like to make. Remove the EU from the situation and all of a sudden we become masters of our destiny again and potentially have the ability to make as many changes as we like to the schemes, including increasing tax reliefs and limits or removing unhelpful conditions. So, whilst it might take a while to work through what changes would be most beneficial to the UK, we do at least now have the power to do so.
So, the omens are good. The UK has the power to make substantive changes to the scheme now we have left the EU. It has the incentive to make substantive changes in terms of fostering and nurturing a tech start and scale up economy and we also have the technical ability to make substantive changes with proposals to radically alter the tax environment. The question now is whether it is prepared to rise to the challenge and embrace such changes.
About Mark Brownridge
Mark has over twenty years’ experience in financial services and prior to becoming Director General of the EIS Association, he was Head of Research and Development
at Mazars, a leading UK financial planning firm. Mark is highly qualified being a Certified Financial
Planner, Chartered Financial Planner, Chartered Wealth Manager and Fellow of the PFS and also sits on the CISI’s Accredited firms committee and TISA’s Distribution Policy Council. Mark’s involvement with EIS began 8 years ago and he has since championed EIS investing within a financial planning context and is extremely passionate about promoting the industry, increasing its effectiveness and ensuring the private sector continues to drive much needed funding to small companies.
