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What’s Brex’t for EIS and VCTs?

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Capital is at risk. Tax planning and EIS tax reliefs depend on individual circumstances and are subject to change. Oxford Capital is unable to offer financial or tax advice and this blog should not be construed as such advice. This financial promotion has been approved and issued by Oxford Capital Partners LLP, which is authorised and regulated by the Financial Conduct Authority (firm reference no. 585981).

EIS and Brexit

What will Brexit mean for the UK’s various venture capital schemes: Enterprise Investment Scheme (EIS), Seed EIS, Social Investment Tax Relief, and Venture Capital Trusts (VCT)?

At the moment, the UK has to follow EU State Aid rules. So, a ‘hard’ Brexit could allow the government to loosen these restrictions. But such an outcome is unlikely.

Under a more likely compromise deal, in order to continue to access the single market, the UK will probably have to comply with the EU’s State Aid and other rules – such as passport requirements for selling into European markets.

But in reality, we believe Brexit’s impact on the tax-efficient industry has already happened. Why? Because the schemes’ rule changes over the last few years are ensuring that capital is directed to growth businesses.

Oxford Capital focus on investing in the ‘Best of British’ – supporting high potential, early stage UK based businesses. We believe the UK is a prime location for world class talent and will remain a rich hub of tech, research and entrepreneurs. Here are our 7 reasons why we think you can feel positive and confident about the future for EIS post Brexit.

1. The government has recognised UK’s global standing in R&D – The government’s new industrial strategy (2018) once again highlighted the UK as a global leader in innovation, and research and development (R&D), which is reassuring news for EIS sectors.

Speaking at the strategy’s launch on 21 May 2018, the Prime Minister said: “We are ranked first in the world for research into the defining technologies of the next decade, from genomics and synthetic biology, to robotics and satellites… With one per cent of the world’s population, we are home to 12 of the top 100 universities.”

This was echoed in the government’s 12-point plan for Brexit, whose 10th item involves ensuring the UK “remains the best place for science and innovation”.

2. Current EU research funding is going to be replaced – Many people will have heard of the EU Horizon scheme, to which the UK is a net contributor and which funds some development products in EIS portfolios. But there is good news. Innovate UK has been tasked with making up the funding shortfall from Horizon, post Brexit.

3. More government funding for research (or no decrease!) – There is further good news here. First, our research budget (worth approximately £6bn, and mostly government-funded) has been ring-fenced. Second, there is a good chance that it will increase in future, given that the government is committed to increasing its R&D spending from 1.7% of GDP in 2012 (£27bn), to 2.4% of GDP by 2027.

4. £2.5bn of new investment in ‘growth business’ – This large new pot of capital for growth businesses will be invested primarily via the British Business Bank and a new entity called the Patient Capital Bank. But the investments will be done in tandem with EIS and VCT funds, and the new money will mean there is follow-on funding for businesses in the EIS schemes.

5. A potential new source of VCT funding: Pensions – In case you missed it, the government recently announced that it was reviewing ways for people to invest a small portion of their pension into venture and patient capital. Depending on their conclusions, this could be a game-changer for the venture capital industry. Watch this space.

6. EIS Rule change to benefit R&D and university spin-out sectors – The government has announced that it is to change the EIS fund structure, so that it can be used as ‘an investor friendly vehicle’ for knowledge-intensive businesses. This should mean that more money will be invested in the R&D and university spin-off sectors.

7. Outlook? A Promising forecast for EIS trading – And finally, post Brexit, it is likely that the UK economy and its positive regulatory environment – the potentially lower sterling value, lower corporation tax and the patent box scheme – may well promote the market for EIS.

In summary, we feel that there are sufficient reasons for EIS investors to be confident that they will be well supported post Brexit – whatever the nature of our relationship with the EU.


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