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Enterprise Investment Scheme (EIS) Industry Report 2014

31 Oct 2014

The first ever industry-wide report on investments that qualify for the Enterprise Investment Scheme (EIS) has found a noticeable increase in the numbers of investors and advisers planning to include EIS in their client portfolios over the next 12 months.

  • More than half of advisers expect to increase their use of EIS over the next 12 months
  • Tighter limits on annual and lifetime pension allowances, along with more generous rules for qualifying companies, are driving growth in EIS investing
  • 91% of advisers recommend EIS investments primarily for the tax benefits, whereas investors are more focused on the level of returns available with the tax benefits being less important
  • Most advisers who do not recommend EIS are concerned that the exits from the investments are unclear

The report published by alternative investment research company Intelligent Partnership, found that more than 53% of advisers surveyed are planning on increasing their use of EIS, citing EIS as an attractive, tax efficient investment option.

The reports research found that tighter limits on annual and lifetime pension allowances, a freeze on the Inheritance Tax threshold until 2019 and a growing awareness of the need to diversify away from public markets are key drivers behind the move to EIS investments.

The report explains the background and rules governing the EIS sector and the risks and benefits of small company investing. It assesses how the tax breaks available under EIS tilt the risk reward ratio back in favour of the investor and looks at how to construct a diverse portfolio of EIS investments. The report also includes an analysis of 244 investment offers and and findings from surveys conducted with advisers and investors.

Other Key Findings

  • The EIS market is set to continue its growth to over £1.5bn annually, driven by new limits on the amounts that can be saved into pensions, the need for diversification and a desire to capture a thriving segment of the UK economy
  • Research shows that systematically diversifying across a portfolio of EIS qualifying companies is the most sensible approach to reducing risk. A portfolio of ten would be the minimum, a portfolio of thirty would be optimal
  • EIS investments present opportunities to offset Income Tax, Capital Gains Tax (CGT) and potentially Inheritance Tax
  • The shape of the EIS market has changed dramatically over time, with energy now the largest industry sector claiming 28% of the market
  • AIM listed firms can qualify for EIS status. Hence qualifying companies may be larger and better established than many advisers and investors believe.
  • Although investing in smaller companies may be risky, the tax advantages of the EIS tilt the risk/reward balance back in favour of the investor
  • The treasury has indicated that it is unhappy with some of the lower-risk, ‘exit-focused’ EIS investments
Please note: this report can count for up to four hours of structured CPD, dependent on the time studying the material.

Download the report now.

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Comments (1)

Greater understanding of the criteria in respect of the Enterprise Investment Schemes Industry, particularly in the diversification of the risk levels of the large variety of investments, which must be investigated thoroughly prior to preparing recommendations to clients.

David Stamp   12/01/2017   12:15


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