Yesterday’s Autumn Budget offered investors a carrot followed by a sharp, short hit of a stick. In his annual financial statement, the Chancellor agreed to double the investment limit of the Enterprise Investment Scheme (EIS), but said the rules surrounding tax relief would be tightened.
The announcement will come as welcome news to start-up businesses, however.
The total annual investment limit will rise from £1 million to £2 million, giving investors additional incentive to invest in fledgling companies.
It means investors will now be entitled to £600,000 of tax relief, compared to the current £300,000, while the potential pool of capital available to entrepreneurs will be widened.
But the Chancellor said the Treasury would make sure the scheme isn’t being misused to invest in “low-risk” capital preservation schemes.
In an unlikely bonus for investors, it was previously suggested that the Government would reduce tax relief for both EIS and Venture Capital Trusts (VCTs), but the plans do not appear to have come to fruition.
According to details on the Treasury website, the Government will double the annual allowance for people investing in “knowledge-intensive” companies through EIS and the annual investment those companies can receive through EIS and the VCT scheme. It will also introduce a new test to reduce the scope for and redirect low-risk investment, “together unlocking over £7 billion of growth investment”.
Commenting on the news, Andrew Aldridge, of private equity firm Deepbridge Capital, said: “As anticipated the consultation response to ‘financing growth in innovative firms’ is seeking to return EIS investments back to how they were originally envisaged, and the new principles-based ‘risk to capital’ test is designed to ensure that the propositions only invest in those businesses which are deemed to be “knowledge-intensive”, have the capacity to grow quickly and are not simply low-risk tax shelters.”