Kuber Ventures has released a warning regarding “capacity constraints” in the Enterprise Investment Scheme (EIS) Market. EIS is a significant tax exemption encouraging investors to invest in earlier stage companies. The program is viewed as strategically important for the UK economy but also delivers powerful incentives to investors. Kuber says investors should start their due diligence now, ahead of the 2017 calendar year. Kuber pointed to changes in legislation that have impacted the EIS sector. Specifically, Kuber said that changes regarding renewable energy investment will slash some £500 million for the year 2016/2017. In previous years, Kuber estimated that approximately 1/3 of the total £1.6 billion invested under EIS came in the energy sector.
Supply vs. Demand
Kuber said compounding the issue, is the fact that renewable investments have historically been seen as an extremely low-risk investment in this space. Changes in legislation mean that investors will need to undertake in-depth due diligence on alternative EIS funds, to ensure the investment meets their preferred risk profile, while still ensuring tax incentivised returns.
Piers Denne, Head of Sales for Kuber Ventures, commented on their forecast:
“What we are seeing is a series of events that have combined to put severe pressure on the EIS market. With significant quantities of EIS maturing in the autumn and capacity predicted to be much tighter as a result of legislative changes in the UK, we are encouraging people to start their due diligence early ahead of the coming season. Advisers who delay in running due diligence on EIS investment houses and establishing access to capacity in the appropriate assets run the risk of not being able to secure the right assets.”
Mark Brownridge, Director General of the EIS Association, the official trade body for EIS investments, echoed Denne’s sentiment;
“What we have seen with the removal of renewable energy investment as EIS investments is HMRC and HMT stamping their authority to reiterate that the spirit of EIS is to fund small companies and encourage growth and development in those companies. For advisers and investors this means their due diligence on EIS schemes needs to be more detailed than ever and that they will need to explain to clients the relationship between growth investments and risk. Removing energy investments leaves a big gap on the supply side and advisers would be well advised to start the due diligence process as early as possible so that they can formulate their recommendation strategy and ensure their clients don’t miss out.”