Jack Rose: EIS's role in answering tomorrow's challenges

Clarity is certainly welcome when it comes to EIS and VCT legislation something that has evolved and changed over the years with the changing tides of government and their individual agendas. 

It is reassuring and encouraging to see the support the current government has for the UK's tax advantaged legislation and the vital role it plays in supporting entrepreneurs, innovators and driving growth for the UK economy. The conservatives were the only main political party to explicitly mention EIS within their recent election manifesto, saying;

"Some of our work has been spectacularly successful - such as the Seed Enterprise Investment Scheme and Enterprise Investment Scheme, which we will continue in the next Parliament."

And crucially, this recognition, in the post-Brexit landscape we will soon find ourselves in and our ability to unlock private capital to help drive investment and bridge the funding gap for our SMEs has never been more important.

But where does this sit for investors?

While some other tax advantages avenues (pensions etc.) continue to be restrictive for some investors, the role that EIS and VCT investments can take in building a tax-efficient retirement pot will continue to grow in importance: just look at the fundraising figures for the last few years.

The aforementioned clarity and commitment of the legislation will give confidence to investors and advisers alike. This stability will continue to bring these once considered esoteric and slightly obscure investments further into the mainstream consciousness for more and more advisers.

Can EIS do more?

Running in parallel to the above, but as part of a broader picture, I'm sure those who are reading this article will be aware we are seeing a shift in the social conscience of investors and society as a whole. We are becoming more aware of the impact of our actions, on the environment and society we live in.

Thousands of column inches must have been dedicated to the subject of ESG, impact and the broader subject of how and what our money is invested into, and the implications thereafter. As mentioned, it is reflective of a much wider conversation that is going on through society as a whole - whether it be climate change, single use plastics, or the impact on our health and the environment of meat consumption, our travel arrangements; electric vehicles or flying less; the list goes on.

Questions are being posed on a personal and societal level both from a moral and financial perspective - how do we address these issues? How do we adapt and change to confront and overcome them? And for the purpose of this article, how could EIS fit into this equation?

Going back to the beginning part of this article, EIS and the UK's other tax-advantaged legislation is there to encourage and support the UK's entrepreneurs and innovators. What better community of individuals to look to for the potential solutions to some of the biggest questions and issues we face today?

There is of course social investment tax relief (‘SITR') but it remains commercially challenging for investment managers, due to the investment size limits, to raise significant sums of capital. It seems, therefore, if managers are willing, that EIS can play a more significant role.

One of the biggest obstacles is awareness and understanding, dispelling the misconception there is a trade-off that must be had between making profits and achieving social objectives/values. This misconception states that, if you want to do good you need to sacrifice profits, or if you want to maximise profits then you need to sacrifice your social objectives.

So, to those wondering where the potential upside is for investors: the Business and Sustainable Development Commission estimated there is a $12 trillion commercial opportunity from investing in assets aligned with the Sustainable Development Goals (‘SDGs') as set out by the UN. It is the supply and demand of free market economics: finding solutions to address market needs.

EIS is, of course, not some sort of panacea to these issues, but it could play a part and, importantly, there is a huge opportunity for investors to both profit in monetary and social terms.

The conversation is still in its infancy and especially so within EIS. There is currently a handful of providers explicitly operating within this space and products just as Triple Point's Impact EIS product are still in the minority. However, I have little doubt that as investor's awareness and consciousness around these issues continues to expand that will be a growing area of the market in years to come.

Jack Rose is strategic sales director at Triple Point

• Tweet  
• Facebook  
• LinkedIn  
• Send to  

• Topics
• Tax planning