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Martin Churchill: Tax efficient news

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The venture capital trust market is completely quiet, apart from a few VCTs that have held their offers open from the last tax year. This is because most providers want to launch an offer into the market in September that can span the calendar year end. They are therefore carefully evaluating how they are going to operate under the new rules on January 1, 2013 concerning adviser charging under which advisers will set their own charges for their services. This means providers need to put systems in place to handle variable payments and no provider wants to be the first to put a product into the market.

The enterprise investment scheme market, by contrast, is very much alive, with new products coming out daily. My subscribers say that they feel restricted from fully engaging with the EIS market by the variety of product categories they encounter and their need to properly identify them and hence to document the advice process for potential subsequent FSA scrutiny.

The main types of EIS are:

1: Single companies
2: Funds or an individual portfolio management service, where the investor ends up with a spread of investments chosen by a discretionary investment manager. The complexity comes from the investor’s status (retail or elective professional), the status of the arrangement’s fund or service (under the markets in financial instruments directive, the RDR and the alternative investment fund managers directive) and the variety of fund offerings.

There are at least three variants in the market currently:
A: A discretionary fund management agreement, where the investor is offered investments which are intended to be suitable for his particular financial circumstances and risk appetite after an appropriate fact-find (an EIS service)

B: A discretionary fund management agreement, where the investor participates, along with other investors, in what is known as an unapproved complying (non-Mifid) EIS Fund. This is where investments are made in accordance with a common investment policy and participation is normally restricted to elective professional clients (an EIS fund)

C: An unregulated collective investment scheme but these have come under heavy scrutiny lately with the FSA saying: “We expect Ucis to be suitable for very few of a typical adviser’s clients, if any.”

Our view is that for the EIS to fulfil its funding role properly, the industry needs to seek clarity from the FSA as to the status of the various EIS fund offerings. We understand this is under way and we will cover progress later in this series of articles.

Martin Churchill is the editor of Tax Efficient Review

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