Autumn Budget brings mixed news for investment

In his first Autumn Budget, the Chancellor agreed to double the investment limit of the Enterprise Investment Scheme (EIS), but said the rules surrounding tax relief would be tightened, leaving investors with a combination of changes to consider.

Start-up businesses are likely to welcome the news however, as the total annual investment limit will rise from £1 million to £2 million, giving investors additional incentive to invest in fledgling companies.

It means investors will now be entitled to £600,000 of tax relief, compared to the current £300,000, while the potential pool of capital available to entrepreneurs will be widened.

But the Chancellor said the Treasury would make sure the scheme isn’t being misused to invest in “low-risk” capital preservation schemes.

In what was an unlikely bonus for investors, suggestions that the Government would reduce tax relief for both EIS and Venture Capital Trusts (VCTs) do not appear to have come to fruition, maintaining the current tax benefits for entrepreneurs.

According to details on the Treasury website, the Government will double the annual allowance for people investing in “knowledge-intensive” companies through EIS and the annual investment those companies can receive through EIS and the VCT scheme. It will also introduce a new test to reduce the scope for and redirect low-risk investment, “together unlocking over £7 billion of growth investment”.

Commenting on the news, Andrew Aldridge, of private equity firm Deepbridge Capital, said:  “As anticipated the consultation response to ‘financing growth in innovative firms’ is seeking to return EIS investments back to how they were originally envisaged, and the new principles-based ‘risk to capital’ test is designed to ensure that the propositions only invest in those businesses which are deemed to be “knowledge-intensive”, have the capacity to grow quickly and are not simply low-risk tax shelters.”

The Chancellor’s move to increase the attractiveness of small and medium-sized enterprises is a positive way of encouraging investment in research and development along with improving competition in sectors dominated by major entities. If you are interested in investing in UK businesses from within the UK or abroad, please contact a member of Mackrell Turner Garrett’s Corporate team who can assist you with the legal requirements of completing your investment.

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Maung is a partner in our Corporate and Commercial department. He joined Mackrell Turner Garrett following corporate law positions in London and in a leading regional firm in Essex.