The tax benefits of EIS investment
While the choice of underlying assets into which you can invest may have shifted over the past year, many aspects of the EIS remain the same. The tax benefits of EIS remain the same, with the structure becoming ever more appealing to those individuals who find themselves limited as to what they can place into their pension either as a result of reaching their lifetime allowance or the recently introduced £10,000 cap for the highest earners. As a result, EIS is losing its niche label and is now being used as part of both longer term wealth accumulation and retirement planning strategies.
Income tax relief of 30 per cent can still be offset against income tax already paid or payable in the current or previous tax year on investments of up to £1 million (or £2 million if the previous year’s allowance has not been used).
EIS also allows investors to defer historic or future gains made elsewhere in a portfolio (subject to time restrictions), with any gains crystallised on the underlying investments being free from capital gains tax. For example, an EIS investment could benefit an individual facing a capital gains bill after selling an investment property where rates currently stand at 28 per cent for a higher or additional rate tax payer.
Most importantly, given the high-risk nature of EIS investments, investors can claim share loss relief against taxable income should one or more of the companies in an EIS portfolio fail, resulting in an additional rate taxpayer effectively only ever putting 38.5p of their £1 investment at risk. This is an incredibly valuable relief offered by the EIS and is a real differentiator to other popular tax efficient wrappers such as Venture Capital Trusts.
Diversifying investment portfolios
Of course, the UK’s creative industries are about more than just content creation. The UK leads the way in businesses focused on media distribution and marketing, post-production and visual effects, tech-enabled media and gaming. This makes for not just a diverse commercial ecosystem but also a broad pool of investment opportunities to target.
By picking the best companies from each of these sub-sectors, creative industries focussed EIS funds are able to create a balanced portfolio for investors, spreading risk and offering significant upside.
Expertise, experience and track record is
As with any fund or investment manager, investors and wealth managers should look for expertise, experience and a solid track record. This is particularly true of the creative industries where a proprietary network of contacts and commercial acumen is key to identifying, investing, managing and exiting companies that have the highest growth potential. At Great Point, we have over 80 years’ combined experience and have produced, financed and distributed over $2 billion of content with over 500 film and TV production credits between us.
The wealth sector has been understandably cautious about investing in the creative industries given its past association with certain high-profile film partnership arrangements. However, with the HMRC pre-approval mechanism and the recent rule change to ensure that capital is focused towards high growth companies only, EIS is a different proposition. The opportunity to support the UK’s creative industries is vast.
By taking a sector agnostic approach and ensuring investment is focused on high growth, entrepreneurial businesses, HMRC has not only safeguarded vital funding for the UK’s media and creative sectors, it has hopefully secured the future of EIS for the next 25 years and beyond.