View more on these topics

EIS on fire in Budget boost

Investment companies and advisers have welcomed new investment and tax relief rules offered for venture capital trusts in last week’s Budget and believe the sector may boom in the last few days of the tax year.

Chancellor George Osborne set out more favourable rules for VCTs and enterprise investment schemes, with some changes bringing both investments in line with one another.

Among the dual changes is the rise in qualifying company limits from 50 to 250 employees and gross assets from £7m to £15m for both vehicles.

The move was a surprise after fears of a crackdown following comments from Osborne last month questioning VCTs. Feed-in tariff businesses, such as solar companies, have been put on the excluded activities list for VCTs and EISs from April 2012.

VCT fund-raising has fallen sharply in recent years from £508m in 2006 to £318m in 2010 and only £25m has been raised so far this year amid concerns over a clampdown.

Chelsea Financial Services head of investment products Matthew Woodbridge says the move could even breathe new life into Aim VCTs, which have suffered under the restrictions.

He says another key improvement will be allowing companies to receive up to £10m of assisted funding in a year – a fivefold increase from £2m.

Woodbridge says: “VCTs and EIS have played an important part in bridging the finance gap faced by SMEs but particularly in the current conditions where banks are more concerned with improving their balance sheets than lending money to small businesses. This means they will continue to help bridge that gap.”

Hargreaves Lansdown investment manager Ben Yearsley says Osborne has secured the long-term future of VCTs. He says: “Sales will improve in the long term but the important thing to recognise is the advantages are being made for the genuine growth-orientated companies. I do not think we will go back to the times of £750m in sales simply because tax relief was at 40 per cent.”

Experts suggest the favourable treatment of EISs, notably raising the level of income tax relief from 20 to 30 per cent in April 2011 and doubling the annual EIS investment limit to £1m from April 2012 – compared with £200,000 for VCTs – may see them heavily outsell VCTs. There are fears that EIS may now attract the wrong type of investor.

Oxford Capital Partners investment director David Mott expects EIS investment volumes to soar by 300 per cent. Since 1994, EISs have raised £7bn, averaging around £388m a year.

MAC Consulting chief executive Mark Chilton agrees that EISs will see a surge in sales due to the increase in tax relief but warns that they are usually a riskier investment vehicle than VCTs.

He says: “Quite how this increased incentive for risk sits with the FSA’s concern over IFAs’ risk-profiling of clients is an interesting conundrum.
“I expect a wall of money to flow into VCTs until the deadline now that the existing regime has been supported in the Budget.”

As for the refocusing of VCTs, Albion Ventures managing director Patrick Reeve says it is a sensible move as a number of VCTs have been targeting investments that do not fill a policy need – essentially a business that could be covered by bank finance.

Reeve says there are some companies that could do with the help in this area. He says: “An example would be anaerobic digestion – the changing of waste food into energy – because that is a complex process that is also expensive. The banks are not lending but VCTs are beginning to.”


Knowing the unknown

Political situations are difficult to predict but advisers must prepare client portfolios in case oil prices go even higher

Nationwide increases lending limit to £2m

Nationwide has increased its upper lending limit from £1m to £2m on its fee-free mortgages of up to 75 per cent loan-to-value. The lender says it will consider higher amounts on mortgages up to 70 per cent LTV from March 31. A spokesman says: “We believe the market has settled sufficiently for us to return […]

Polar Capital to set up global financials fund

Polar Capital plans to introduce a fund investing in global financial stocks following its acquisition of specialist financials investor HIM Capital.The financial opportunities fund will be managed by John Yakas and regulated under Ucits III. Polar expects to set up the Dublin-domiciled fund next month. It will seek out opportunities in the recovering US and […]

How QE is distorting the gilt market

By Mike Riddell The moves in gilts in August were truly exceptional. Volatility in the gilt market (based off 10-year gilt futures) has soared to close to the highest levels seen this millennium, on a par with the eurozone debt crisis of 2011/12 and behind only the global financial crisis of 2008/09. The first distortion […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm