With Martin Sherwood, Head of Product, Enterprise Investment Partners
Chancellor George Osborne delivered the Government’s annual Autumn Statement on Wednesday, delivering an upbeat assessment of the UK’s economic recovery as a whole. Although the economy is expected to grow by 1.4% this year, double the level expected when the budget was delivered in March, Osborne told the public that “there is an awful lot of austerity still to come”, and to make matters worse, the Institute for Fiscal Studies has claimed that much of the forecast is based on growth coming sooner than expected, but that prospects in the longer term remain bleak. We have taken a closer look at what the statement might mean for tax efficient investors, with a particular focus on EIS and SEIS eligible products.
Good news for entrepreneurs and Angel Investors using EIS
Entrepreneurs are set to benefit from a change which means that gains eligible for Entrepreneurs Relief (ER) and deferred into investment through EIS, will still qualify for ER when the gain is realised. This makes reinvestment into a new generation of EIS companies by successful entrepreneurs a far more attractive prospect, because Capital Gains Tax will be reduced from the usual 18 or 28% tax rates, down to just 10%. ER will no longer be available on the disposal of a business and its goodwill when transferring the business to a related close company, however.
Martin’s view: “A good time to be a business angel, the UK needs entrepreneurs to be fully invested!”
End of the road for Solar, Hydro and others; renewable energy projects confirmed ineligible for EIS
The Government has been quick to stamp out a perceived taxation loophole whereby renewable energy projects could claim dual relief through different Government departments, for example Solar projects benefitted from both the EIS tax efficient wrapper and Feed-in-Tariffs (F-I Ts), inflation adjusted payments for producing green energy. The Autumn statement confirmed that renewable energy schemes such as Solar and Wind will remain ineligible for EIS, SEIS and VCT investment, although they will still qualify for Social Enterprise Schemes.
Anaerobic digestion and Hydro projects have also been excluded from EIS, possibly surprising some fund managers who saw them as a potential alternative to solar, which had attracted almost £1bn of EIS and SEIS investment over the past 3 years.
Martin’s view: “the sun has set on solar for now, but there are plenty of very good alternatives; here at EIP we are big believers in asset backed trades: pubs, bars, shipping, and fine wine for example. Plus we are backing Stephen Page’s Startup Funding Club, a pure SEIS fund which invests in early stage businesses through a network of mentors and angels. Real business people!”
Government withdraws tax on inherited pensions, extends medal and decoration exemption, but no change to IHT Threshold
The good news for beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity, is that they will receive all future payments from the policies tax free. Additionally, joint life annuities can be passed on to any beneficiary, meaning these types of pension will no longer be taxed at 55% on the death of the policy holder.
Further changes to Inheritance Tax include an extension to the medals and other decorations exemption, which include all decorations and medals awarded to the armed services or emergency services personnel, and awards made by the crown for achievements and service in public life.
Martin’s view: “EIP notes that no change, however, has been made to the Inheritance Tax Threshold of £325k. EIP are set to launch an IHT fund to help families protect their assets from unnecessary taxation, so watch this space!”
“In truth, this was not a statement that radically alters our stance or ambitions here at EIP. We welcome crackdowns on tax evasion, although the government’s main focus here is rather more on larger corporates, and we are pleased that a potential reduction in Capital Gains Tax for entrepreneurs via EIS will lead to more investment in strong early stage companies. There is some good news around IHT; it remains a complex beast, but one that we hope to address for our clients. We do welcome the small changes that have occurred, however.”