The build-up to and subsequent outcome of the Patient Capital Review were major talking points for the tax-efficient space and, writes Jack Rose, its implementation and impact look set to be similar in the year ahead

2017 has been another good year for the Enterprise Investment Scheme (EIS) and venture capital trust (VCT) space. Fund-raising levels have remained high and government support for associated legislation means there are increasing numbers of new advisers and their clients looking at and investing in the sector.

The 16/17 tax year saw the second highest fundraising figures on record for VCTs with more than £540m raised and, although we are still mid-17/18 tax year, at this stage it seems likely the VCT sector will again eclipse these figures, with some £400m already raised – and we are yet to enter the busiest period of this tax year.

There is an undoubted increase in demand for tax-advantaged investment and, specifically VCTs, driven mainly by the restrictions on pension contributions – both by way of the annual and the lifetime allowances – and the hunt for attractive income.

Having said that, demand is naturally tempered by the number of people who are appropriate for this kind of investment – something that is especially relevant for the EIS sector. The dynamics of this space have evolved considerably in the last five or so years.

In the past, significant amounts of investment were driven by financial planning around the tax break with a focus on security of capital. These investors may no longer be comfortable with the change in the risk profile of the sector as it shifts more towards true growth capital.

It is not just investor appetite that acts as a natural curb – there is also the availability and access to appropriate deal-flow for managers, which naturally limits how much money can be invested. As such, we have arguably reached – at least for the time being – a natural plateau in fund-raising through EIS.

Although figures for the 14/15 year have only just been released, they showed fund-raising was broadly flat against the previous tax year and this looks set to continue to be the case, or even see a slight reduction over the next few years.

The big talking point for the whole sector has been the build-up to and subsequent outcome of the Patient Capital Review. Without going over what is now well-trodden ground (even on Professional Adviser alone. Ed), following much speculation, we can, on the whole, be broadly content with the outcome.

There were no changes to tax reliefs or minimum holding periods and there are no trades or business activities that have been excluded. The principles-based approach that will now be adopted to granting ‘advance assurance’ seems sensible and pragmatic on paper, but we will wait to see how it is put into practice.

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Source: Professional Adviser



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