Changes in the Autumn Budget have made it still more vital advisers research VCT and EIS managers thoroughly to ensure they have relevant experience, according the experts on Professional Adviser’s EIS webinar panel.
Last November’s Budget, which coinicided with the government’s response to the Patient Capital Review, saw the introduction of the new ‘principles-based’ test on tax-efficient investments.
This is intended to focus investment towards so-called ‘knowledge-intensive’ businesses and those seeking long-term growth, rather than low-risk capital preservation companies.
The Treasury also increased the annual Enterprise Investment Scheme (EIS) investment limits for investors to £2m – as long as monies invested above £1m are in those knowledge-intensive companies.
The panellists, however, suggested many investment teams in the sector had been shaken because they were brought together to invest in capital preservation strategies, which is something the Treasury is now actively trying to steer funds away from.
“The EIS people who have historically done capital preservation are all still in business are still suddenly trying to become growth investors,” said Calculus Capital founder and CEO John Glencross. “There’s a frantic recruitment process going on at the moment and some funds are trying to increase their experience.”
Seed Mentors Entrepreneurs director Harvey Shulman recommended advisers “look to see how much experience your manager has in the sector and how relevant that experience is to the current market”.
Glencross added: “Look to see how long that team’s been together, look to see what an EIS or VCT investment manager was doing three to five years ago in terms of the type of investment they focused on and if they were doing a different sort of investment. Question how suitable they are and whether that team is investing in the sort of investments that are now the mainstream of EIS and VCT.”
Glencross and Shulman were joined in the live webinar by Deepbridge Capital partner Andrew Aldridge and EIS Association director general Mark Brownridge, as well as host and Professional Adviser editor Julian Marr.
Aldridge added to the points made by Glencross and Shulman by saying advisers should find out how quickly managers look to deploy funds, as well as how experienced they are.
“Back in the dark old days of EIS you put your money in, it went into a black box, and at the end of the tax year you’d suddenly get some share certificates through and it would be the first time you knew what you were investing in,” he said.
“So understand what you’re investing in but also how quickly your money is going to be deployed into EIS companies. Is it going to be deployed this tax year so you can utilise carry back from the previous year, say, or is it going to be deployed in the next six or 12 weeks?
“Ultimately, if you’re not going to be deploying funds for two years, as some of our peers now promote and if you’ve got a three-year clock ticking EIS anyway that’s five years before you can even consider an exit.”
The Professional Adviser webinar, Why the future’s now the future for tax-efficient investors, brings together four of the UK’s leading EIS experts to discuss the implications of the Autumn Budget and the government’s response to the Patient Capital Review – in particular, what it all means for investors in the EIS space and those who advise on it and how it might change their approach to tax-efficient investment and tax planning. You can watch it in full here