The recent closure of the football transfer window does have certain parallels with the scramble for EIS products in the run up to the 5th April tax year end. Commentators regularly observe that those who do their business ‘early’ are often better placed when compared to those who leave it ‘late’ and can’t ultimately fulfil their requirements.
The 2016/17 tax year is in some ways unchartered territory in the EIS universe with renewables no longer qualifying and new pension’s restrictions taking full effect this year for the first time. There is nothing to suggest that the appetite for EIS will be diminished this time round and indeed there are many who expect demand to increase.
Growth capital EIS investments will very much be the theme of this year’s offers but at risk of repeating myself, this brings with it a range of issues which advisers and investors will need to contemplate. Deploying tens and in some cases, hundreds of millions in growth cap situations simply won’t happen. The impact of the 7 year role will dictate the size and substance of most EIS qualifying investments the metrics of which determine that most deal sizes will be sub £1 million. That suggests that an awful lot of deals will need to be done to satisfy market demand but sheer capacity to transact more than 20 deals per year at provider level will be challenging. Finding 20 deals is much less of an issue than finding 20 deals at sensible values and which come through the rigours of stringent due diligence! Again, at the risk of being boring on the matter, being fully invested and in possession of an EIS3 certificate is somewhat academic if the underlying investment thesis is flawed. Investors should always select their provider based on their pedigree and likely capability in producing good investment outcomes 4 years or so down the line.
A significant driver for all this inevitably comes from deal flow and the ability of the provider to sustain this quality. At Seneca, we will meet over 200 eligible businesses again this year but selecting, negotiating and then transacting 20 or more which meet our criteria is far from a given. As such we expect our band width to be a maximum of £25 million – £30 million and assuming other providers face similar issues then demand could easily outstrip supply this year. The Seneca EIS Portfolio Service has completed 11 investments totalling c.£10 million in the 8 months to 31st August 2016 and in offering clients 4-6 holdings per investment we expect to maintain our position of having clients fully invested in 6-8 months. So those advisers and investors who wish to invest pre 5th April should be mobilising sooner rather than later.
As those aforementioned commentators observe those who get their business done early are often best placed.
Please remember that tax rules and regulations are subject to change. EIS investment is not suitable for everyone; you should seek advice from your financial and tax advisers before making an investment.
Blog by Ian Battersby, Seneca Partners, Business Development Director