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Use Of UK EIS Tax Breaks To Rise: Report

by Robert Lee, Tax-News.com, London

10 February 2016


The use of Enterprise Investment Schemes among UK financial advisers is set to increase dramatically over the next year, according to a survey by advisory service Intelligent Partnership.

61 percent of the financial advisers surveyed as part of Intelligent Partnership's 2015-16 EIS Industry Report said that they expected their use of EIS would increase within the next 12 months. It explained that lower pension limits and a threat to higher tax rate relief were cited as the two biggest drivers for the increasing use of EIS.

EIS provides tax relief to investors in higher-risk small companies. Relief is provided at 30 percent of the cost of the shares purchased, to be set against the individual investor's income tax liability for the tax year in which the investment was made. Relief can be claimed up to a maximum of GBP1m (USD1.5m) invested in such shares, with a maximum tax reduction in any one year of GBP300,000 (providing the investor has sufficient income tax liability to cover it). After two years, EIS shares are exempt from inheritance tax (IHT).

Intelligent Partnership said that 96 percent of the financial advisers it surveyed agreed that the income tax relief available was one of their top three reasons for recommending EIS. 76 percent also cited IHT mitigation, while 57 percent explained that portfolio diversification was a primary reason for choosing EIS. Only 10 percent said the opportunity to invest in a particular sector or business was their primary motivator.

Daniel Kiernan, Research Director at Intelligent Partnership, commented: "It's no surprise that advisers are expecting to invest more in EIS this year, as changes to our pension system have strengthened the investment case for tax-efficient investments like EIS. What's perhaps more unexpected is the number of advisers who are utilizing EIS for their IHT benefits. Perhaps this reflects the financial planning needs of clients who are concerned about passing on their wealth, but who don't want to give us control of their assets or sacrifice any potential growth just yet."

TAGS: inheritance tax | Finance | tax | investment | small business | business | tax incentives | retirement | United Kingdom | education | small and medium-sized enterprises (SME) | tax planning | tax rates | tax breaks | individual income tax | Investment | Personal Finance | Invest | Investment

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