The record year has been put down to pensions becoming more restrictive for higher earners; those with incomes of more than £210,000 can now only put £10,000 into a pension each year.
EIS, introduced just over 20 years ago, aims to encourage investment into less mature companies that are unquoted.
Some of these businesses are new start-ups, while others are more established, but either way investors need to have a stomach for risk.
GENEROUS TAX BREAKS
In return, however, generous tax breaks are offered. Those who invest for a minimum period of three years benefit from 30 per cent tax relief on their investment.
There is also exemption from capital gains tax (CGT) on EIS share sales, plus the opportunity to defer CGT on other assets by reinvesting the proceeds into an EIS. Investments generally also qualify for inheritance tax relief after two years.
The HMRC figures, which analysed the amount of money invested, reveal the record amount invested last year was split across 3,130 companies.
In total over £14 billion has now been invested in EIS qualifying companies since they were first launched.
Ben Yearsley, investment director at Wealth Club Ltd, says: ‘The combination of investment into exciting, small, often entrepreneurial companies with generous tax breaks is compelling.
‘Tax-efficient investment has had a lot of negative publicity recently, however these are legitimate government endorsed schemes set up to help small companies grow.’
As pension rules have become more restrictive, says Yearsley, many high earners have turned to the relatively generous allowances of VCTs and EIS as an alternative.
‘I expect this trend to continue as many of these individuals will now be restricted to annual pension contributions as little as £10,000. 30 per cent income tax relief, tax-free growth and inheritance tax free status are helping drive the growth in EIS investment.’
John Glencross, acting director general of the EIS Association, comments: ‘EIS undoubtedly forms part of the bedrock of the growth company funding landscape, helping businesses to grow and succeed, which in turns pays dividends to the wider economy through job growth, taxes, spending and new products and treatments.
‘Finally, in a virtuous circle, the UK taxpayers who back EIS companies and funds are rewarded with generous tax reliefs and, often, attractive tax-free investment returns.’
SOURCE: www.moneyobserver.com
