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How has “Risk to Capital” Condition Impacted EIS?

How has “Risk to Capital” Condition Impacted EIS?

HMRC has recently published its report detailing the EIS and SEIS fundraising undertaken by companies in the 2017-2018 tax year. You can download the full report from here.

Whilst 2017-2018 saw fundraising reach a record high (potentially topping £2 billion for the year), it was the last year under the “old HMRC rules” prior to the introduction of the Risk to Capital Condition in April 2018. Despite this record high, there was a noticeable drop in the number of applications for Advance Assurance compared to 2016-17 with a lower proportion being approved.

The Enterprise Investment Scheme Association have recently noted that some fund managers “have had a much harder time raising money from investors” and predicts that “we will see these [fundraising] figures decrease by c. £350 million in 2018-2019”, a drop of c. 17%.

The introduction of the Risk to Capital Condition has certainly seen off the “asset backed” EIS investment schemes popular with some investors, with the current crop of qualifying investment opportunities rightly only appealing to investors with the appropriate risk appetite. Indeed, the market has started to experience failures of companies in funds once marketed as capital preservation or asset backed.*

From our perspective, our EIS Portfolio Service has always focused on proper growth capital investment meaning that the introduction of the Risk to Capital Condition has not had a detrimental effect on our fundraising and how we deploy those funds. In the 2018-2019 tax year, we raised over £10 million of new subscriptions representing a 10% increase in the number received in the previous year. As importantly, we maintained our deployment rate of over £10 million p.a. across a number of investment opportunities.

Potential Investors will be pleased to know that our Investment Team has over £8 million of investment opportunities under consideration.

* Source: The Enterprise Investment Scheme Association

Important Notice
It is important to be aware that not all investments in smaller unquoted companies are successful and investors must understand the risks inherent in such investing. If you are in any doubt then you must speak to a financial adviser. Investments in unquoted companies could put some or all of your capital at risk.

 

 

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