As we enter the final gallop towards the tax year end, once again this period is a significant time for both EIS/SEIS investment managers and financial planners.
As an industry, fundraising is becoming far more evergreen and investment managers report significant inflows spread over the course of the tax year but fundraising still shows signs of conforming to a Pareto’s Law scenario whereby 80% of all EIS/SEIS fundraising is made in the last 20% of the tax year. What’s far more important than the timing of fundraising inflows is the amount. The good news is that investment managers anecdotally are not reporting significant reductions in the amount they normally raise on the back of the legislative changes that came into force from April 2018.
Tax year end is also, of course, an important tax planning opportunity for investors and financial planners. Investors with tax liabilities and a sufficient appetite for risk, should consider an EIS investment.
One particularly attractive tax planning opportunity applies to the self employed and company directors who can control how their remuneration is paid. Often these groups cant quantify their income until the end of the tax year or even until the next tax year so EIS/SEIS’s ability to be able to ‘carry back’ all or part of your EIS investment to the preceding tax year as long as the limit for relief is not exceeded for that year. (The limit for EIS is £1m per tax year, rising to £2m provided £1m of this is invested in knowledge-intensive companies.) is invaluable.
This means that you can make a subscription of £3m EIS shares in 2017/18 with a carry back of £1m to 2016/17 so long as your EIS cap for 2016/17 is not exceeded.Such flexibility can be vital and allows for greater investment with more certainty over timing.
A note of caution though. Because of the way some EIS and SEIS funds deploy capital, there can only be a limited number of available funds that are able to ensure investors monies can be carried back. So if you’re interested in carried back, check that you select an EIS/SEIS fund that can accommodate this.