EIS Magazine Issue 1

INVESTING IN LEADING EDGE

MOVING TAX EFFICIENTINVESTING FORWARD

JANUARY/FEBRUARY 2015 ISSUE 01

www.eismagazine.comSupported by

TAX ANDTECHNOLOGYSTRATEGYOpEN OFFERS

SEIS EIS VCT OEIC IHT BpR

The IFA Guide to Tax Eff ic ient Invest ing

OVER

GREENLIGHT

3www.eismagazine.com January/February 2015

EIS Magazine is published by IFA Magazine Publications Limited, The Old Wheelwrights, Ham, Berkley, Gloucestershire GL13 9QHFull subscription details and eligibility criteria are available at www.eismagazine.com2015. All rights reserved.

Telephone: +44 (0)117 9089 686

Editor: Michael Wilson [email protected]

Publishing director: Alex Sullivan [email protected]

Design: Fanatic Designwww.fanaticdesign.co.uk

EIS Magazine is for professional advisors only.Full subscription details and eligibility criteria are available at www.eismagazine.com

EIS Magazine is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system wihtout prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies, independent research and where necesary legal advice should be sought before acting on any information contained in this publication.

Upcoming Events

Tax Efficient Investing for HNW ClientsA Year-End Adviser Seminar on EIS/VCT and BPR Investments from IFA Magazine and EIS Magazine

Tuesday 24th February 2015Hyatt Regency Hotel, Birmingham

Thursday 26th February 2015The Capital Club, London

These extended morning seminars will explore the possibilities for HNW investors of all types, and will explore EIS/SEIS, VCT, BPR and SITR investments with an impressive panel of expert speakers.

WelcomeA new chapter starts here. Michael Wilson explains why we started EIS Magazine, & what we hope Advisers can get from it.

The View from EISASarah Wadham, Director General of the EISA, on why 2015 is going to be the year for EIS and alternative funds.

The EIS Tolley DiplomaAnd why every Adviser ought to think about signing up for it

News In BriefOur monthly round-up of news stories. Keep sending us your news, please.

EIS and the Alternative Investment MarketShane Gallwey, Fund Manager at the Guinness AIM EIS 2015, says the relationship goes further than you think.

Tax and Eligibility - The Basics Michael Wilson presents a brief guide to the available reliefs

Timing Your ExitGuy Tolhurst, MD at Intelligent Finance, explains how the best stage exits are planned long in advance. And with plenty of curtain calls.

Open OffersOur monthly listing of whats currently available for subscription.

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VCT Funds - A guideRichard Wazacz, Line Manager for VCTs at Octopus Investments, discusses how VentureCapital Trusts work, and how they can be used to achieve different goals.

Leading Edge TechnologyMercias Talon Golding looks at how EIS funds can promote small tech companies. And how it can hold onto them after theyve stopped being small.

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The MICAP Fund Finder PortalThe power to change everything. MICAP CEO Andy Marris presents a revolutionary new database of EIS/SEIS/VCT/BPR investments. And it wont cost you a penny to try it out.

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4WelcomeIve got this problem thats been bothering me for

weeks, so bear with me. Im trying to find out what the opposite of the phrase Perfect Storm might be? Perfect Calm? No, I dont think so.

Perfect Convergence? Sounds too scientific, somehow. Perfect Circumstance? No, too vague. And the dictionarys no help. I suppose Ill have to keep on looking.

Whatever it is, though, thats what weve got right now. Its a convergence of totally disparate factors that ranges from last years reduction of the lifetime pension contributions limit and the general search for better risk rewards, right through to a desperate shortage of bank lending for small and early-stage companies and, finally, on to the popular-culture focus on early-stage investment through Dragons Den, crowdfunding and all the rest of it.

All of it gift-wrapped in a government commitment to making alternative investments as tax-friendly and attractive as possible. (Thus neatly sidestepping the awkward issues about the banks reluctance to lend, but thats another story.) Was there ever such a meeting of needs?

A Record Year

Is it any surprise that the 2014/15 tax year thats now ending has seen EIS investment topping 1.5 billion for the first time, or that many VCT funds look set to close well ahead of April because of an extraordinary level of demand? Should we be impressed that well over 1,100 brand new companies have now obtained seed capital through the SEIS system, and that the flow of new applications is rising by as much as 25% a year?

Make no mistake, early stage is smart right now. And the range of tax-effective options is growing all the time from 2012s Seed EIS regime to last years Social Investment Tax Relief (SITR), with more expected in due course. Specialist tax-efficient vehicles like Business Property Relief (BPR)

schemes are rapidly gaining popularity. There are funds for pubs and restaurants, stage entertainment, wine, health services. Nobody ever said early-stage had to be just about technology.

An Information Hub

But Advisers are still feeling uncertain about these schemes. How do the tax breaks work, they ask, and are they safe from future government meddling? What sort of clients should sensibly be looking at them, and what are the time horizons? How far do an Advisers responsibilities extend? And are there any EIS-type investments that can mitigate client risk or offer greater flexibility?

These are the kinds of issues well be focusing on, here at EIS Magazine. No question is too simple or too complex. Just ask us. Take a look at our Open Offers section, which is already proving wildly popular as a resource for Advisers. Try your hand at the new fund comparison service from MICAP, free of charge. And then come back to us with more questions. EIS

Many thanks for reading EIS Magazine, and we hope you enjoy it With Best Wishes Michael Wilson, Editor

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INVITATION

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6 EIS Magazine January/February 2015

Spreading The WordBy Sarah Wadham, EIS Association Director General

As Director General of the EIS Association, may I extend a warm welcome to the launch issue of EIS Magazine.

As youll be aware, EIS and SEIS are becoming increasingly important, both as legitimate tax planning tools but equally importantly as a means of channelling much needed equity capital into early stage and developing UK entrepreneurial companies. It is estimated that up to 1.5bn will be invested into these companies in the year to April 2015. This investment fuels innovation and growth in employment, and it is vital for the growth of the wider economy.

The EISA is the trade body for the EIS and SEIS industry. Its members are the EIS and SEIS funds and the lawyers,

accountants and corporate financiers who advise both the companies seeking investment and the investors. The EISA maintains close relationships with the Treasury and HMRC and the FCA to ensure that the EIS/SEIS reliefs work effectively to support small and growing businesses.

This summer the EISA made an extensive submission to the Treasury/HMRC Consultation on the working of Tax Advantaged Venture Capital Schemes which will form the basis for negotiations with the European Union. Other major achievements of the EISA include encouraging the raising of the investment limits for EIS companies in 2012, which has allowed investment into larger companies.

Building A Confident Future

This has encouraged investment from new investors who might have considered earlier stage companies as too high risk. And yet EIS and SEIS are often still perceived as complex, meaning that many IFAs have hesitated to recommend them to their clients. In recognition of this, the EISA in conjunction with Tolley Exam Training, have launched the EIS Diploma, an online course with an accredited final exam. Several EIS Fund providers will be holding Diploma workshops for their IFA contacts.

But were not stopping there. In addition, to encourage and recognise excellence and professionalism in the industry, the EISA has re-launched the highly prized EIS/SEIS Awards. This year these will be judged by independent outside judges against set criteria. The EISA has also launched Green Shoots for younger professionals in the industry and is encouraging greater links with the entrepreneurial companies seeking investment.

For more details on the EISA, the Tax Reliefs and the Diploma, please visit the EISA website: www.eisa.org.uk or email: [email protected]

With very best wishes to EIS Magazine, and to all Advisers and ProvidersSarah J. Wadham Director General

It is estimated that up to 1.5bn will be invested into EISand SEIS companies in the year to April 2015


Given that we are seeing increasing levels of interest and investment into EIS qualifying companies and funds, it is vital that financial advisers and wealth managers are fully aware of how the Enterprise Investment Scheme operates, including the ways to invest in EIS companies and funds and which investors these investments are appropriate for.

As such, Tolley Exam Training, in conjunction with the Enterprise Investment Scheme Association (EISA) have launched the Enterprise Investment Scheme Diploma, a comprehensive, self-study diploma covering all aspects of EIS, including the tax implications, regulatory aspects and the wider funds and schemes landscape. It demonstrates effective ways to utilise investments efficiently to maximise the benefits in an easy to understand manner.

EIS DiplomaBy Mary Rodgers, EISA Membership Manager

Anyone studying for the EIS Diploma with Tolley Exam Training will receive:

A comprehensive study manual with useful summaries to aid understanding and practice examples, many of which are in the multiple choice format that

will be seen in the final Diploma exam

Access to the Tolley Online Academy, also available as an app, where you can access all study material either online or offline, and ask queries on the Student Forums

Full support from the experienced tutor team

Access to the Tolley Online Exam Centre for all the Diploma and mock exams. The mock is representative of the final exam testing environment providing ample familiarity and practice to aid a first time pass

A Diploma certificate on passing, accredited by the EISA

15 hours of CPD

The final Diploma exam is a 60 minute online test and covers the full syllabus. There is also a full syllabus mock in preparation for the final Diploma exam. Bothare multiple choice exams available from the Tolley Online Exam Centre so have complete flexibility to be sat at any time.

For more information on studying for the EIS Diploma please visit tolley.co.uk/eisdiploma, email [email protected] or call 020 3364 4500

BE FIRSTOVER THELINE


A reminder that changes to the investment rules in April will mean that VCTs, EIS, SEIS will no longer be able to invest in renewable energy schemes, including anaerobic digestion and hydroelectric power, with effect from 6th April. Effectively, this creates a window of opportunity for investors which will close at the end of the tax year.

In practice, EIS, SEIS and VCT companies have been barred since last July from investing in solar and wind schemes, because they

Hot CakesMany VCTs are currently on track

to close sooner than originally anticipated because they are well ahead of their fundraising targets, according to analysis from investment provider Clubfinance. By mid-January, it said, the Maven Income & Growth 4 had already closed while the Maven Income & Growth VCT had attained 70% of its quota. Elderstreet VCT had hit 80% and British Smaller Companies VCT and VCT2 had both achieved 40%.

Things were also moving smartly among Alternative Investment Market VCTs, where the Hargreave Hale AIM VCTs 1 and 2 had both passed the 41% mark. Octopus AIM VCT 1 and 2 had been quoted at 65% and 55% respectively, while Unicorn AIM VCT had reached 64% of its target.

Mark Wignall at Mobeus Equity Partners had told the FT in December of his concern about the danger of a supply and demand mismatch, caused, he says, by greater risk tolerance, poor returns from alternatives, and not least - clampdowns on unapproved tax avoidance schemes. Quite so.

News In BriefRound up of the latest industry news

The Seed Enterprise Investment Scheme (SEIS), which launched only in 2012, has already logged up its first four-figure result, according to research by Radius Equity. 1,120 small companies had secured funding by January 2015, it said, and a total of 83.7 million in seed funding had been raised. But, it added, there is still significant potential for take-up to grow.

Favourite sectors for SEIS investment include information and

computer technology, Radius reports: ICT accounts for fully 32% of the funds invested so far under SEIS the highest of any sector - with the number of applicants having risen 26% last year. Business services accounted for 22% of the total; distribution, restaurants and catering for 14%; recreational activities for 13%; manufacturing for 8%; and energy and water supply for 3.5%.

SEIS Approvals Into Four Figures

have been excluded from benefiting from the Renewables Obligation Certificates (Rocs) and the Renewable Heat Incentive (RHI) scheme. The Treasurys extension of the ban into areas such as anaerobic digestion and hydroelectric power is the next step. But the guidance is those companies which themselves dont receive the benefits from feed-in tariffs, Rocs, RHI etc will remain eligible for funding.

Alternative Energy: Changes in April

1,120 smallcompanies secured

funding

83.7mseed funding raised

LAUNCHED 2012

BY JANUARY 2015


News In Brief

Green ShootsGetting the EIS message out to

advisers isnt enough for EISA Director General Sarah Wadham, it seems. The organisation is also extending its reach into the younger end of the business by launching a junior branch entitled Green Shoots, which it says is designed to provide young professionals in the industry with the chance to independently develop their own networks, interest and awareness of the world of alternative investments.

The aim of the enterprise, EISA says, is to create a space where our members can meet and interact with early-stage companies, keep up to date on industry trends, as well as build early and lasting business

relationships with each other.We do this through holding evening networking events with guest speakers, sending out regular updates and hosting bi-annual technical seminars.

Membership, which costs 100 a year, provides access to Green Shoots evening networking events; a bi-annual technical seminar (CPD accredited); a listing on the Green Shoots member page at the EISA website; the chance to win a ticket for the prestigious annual EISA Awards held at the House of Lords; and, not least, the ability to enter for the Best Innovator/Newcomer/Rising Star in EIS category at the EISA awards.

Election NightmareWhats on advisers minds this

year? Not the economy, to judge by responses to a survey of attendees at Octopus Investments annual event in London on 21st January. 67% of those polled said that political uncertainty around the general election in May is keeping them more awake than economic uncertainty or a possible slowdown in recovery and global growth.

94% of the respondents confirmed that they were seeing increased demand for VCTs and EIS, Octopus says, and 78% felt that this was largely due to VCTs and EIS being more widely recognised tax-efficient investment solutions. One in three added that they feel the recent pension reforms have created an opportunity for more people to think about alternative tax-efficient investment solutions to support their retirement.

Time for TrainingIts not too late to beef up your

knowledge levels, you know. The next three months will bring a series of important opportunities for advisers to hone their EIS, SEIS, VCT, BPR and SITR skills many of them in the comfort of luxurious surroundings with food, drink and a chance for essential networking. What better way to pick up some CPD points?

IFA Magazine Events

Firstly, there are two EIS and Tax Planning events from IFA Magazine, which also owns EIS Magazine. The first kicks off on 24th February 2015 at Birmingham, and the second on 26th February in London.

Both of these extended morning seminars will explore the possibilities for HNW investors of all types, and will explore EIS/SEIS, VCT, BPR and SITR investments with an impressive panel of expert speakers. We will also be demonstrating MICAPs radically new online service, as described on Page 11 which allows advisers to examine, compare, assess and recommend to clients from a brand new comparison portal covering 120 funds.

The two seminars are CPD qualifying, of course, and they are free to attendees. Places are limited, so do contact us as soon as possible to reserve your seats. Details at http://tinyurl.com/no5dogd, or from the IFA Magazine website at www.ifamagazine.com.

Intelligent Partnership EIS Masterclass

Guy Tolhurst, this months contributor on tax exit strategies, is running a four-hour seminar and workshop in London on 5th March on the subject of EIS investment. Details can be found on Page 46. And as youll see, readers of EIS Magazine qualify for a reduced attendance fee of 65, compared with the standard 95 fee. Details from http://tinyurl.com/lpwjtsc.

The EIS Tolley Diploma

As featured on Page, EISA has teamed up with Tolley and with Kuber Ventures to present the EIS Tolley Diploma, an accessible online study course which leads to an EISA-accredited diploma, a comprehensive study manual, access to the Tolley Online Academy and 15 hours of CPD. Details from tolley.co.uk/eisdiploma, or email [email protected]. Tel: 020 3364 4500

Digitising the ProcessOne of the more widely overlooked

highlights of Chancellor George Osbornes Autumn Statement was a commitment to set up a new online system, by 2016 at the latest, which he said will allow investors easier access to EIS, SEIS and SITR. A similar format for VCTs is also planned, the Chancellor said.

Essentially, the new system will allow investors to register digitally. And in principle, that should be a good thing for early-stage companies seeking easy penetration. But inevitably, there are those who worry that the new system will enhance HMRCs ability to scrutinise tax-efficient vehicles, by making it easier for HMRC to discover which investors are using such schemes.

Some have expressed fears that it may usher in a sharper investigative line on tax avoidance schemes. Conversely, the changes ought to speed up the very slow process of receiving HMRC approval for a tax-efficient scheme. Heres hoping.


Twenty Four SevenIFA Magazine, Britains premier online

portal and print publication for

financial advisers, has launched its very

own app designed to help you stay

up to date with all the latest financial

and economic news as it happens. Main Features:

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Market and Economics

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IFA Magazine App.indd 1 21/11/2014 09:43


Time is Money...EIS Magazine talks to Andy Marris, CEO of MICAP

Cometh the time, cometh the product. If ever there were a moment for a properly comparative online system that could enable advisers to compare and assess the growing EIS, SEIS, VCT and BPR marketplace, this must surely be it.

The very rapid growth of investment alternatives over the last few years is enabling clients and their advisers to extend their engagement with risk investments in a way that would hardly have been thinkable five years ago. The government is right behind it. Yet the difficulty of obtaining suitable material for due diligence has been holding many advisers back fearful of long-term consequences if they turn out to have made the wrong recommendations.

Surely it cant be that impossible

to set up a one-stop portal that would enable advisers to compare every available EIS, SEIS and VCT, Morningstar-style? Thats what Andy Marris, CEO of London-based MI Capital Research Ltd, thought when he set up MICAP in September 2013. Just over a year down the line, and a lot of development time later, the MICAP Fund Finder has arrived.

My own research showed that in this rapidly growing market, advisers lack three things, says Marris: Product knowledge, an up to date all-of-market view and time to conduct their due diligence. So any system which can give them access to this information from anywhere must not only help them comply but add significant value to their business.

A Meeting of Needs

The point is that, as Marris puts it, advisers are stuck in an inefficient market which makes it difficult for clients and their advisers to connect effectively with suppliers - or even to identify the differences between their various offerings at all. And that inefficiency, in turn, can easily become a daunting bottleneck between advisers and the regulations that they need to adhere to.

On the one hand, he says, there are lots of new and exciting offers coming onto the marketplace and a lot of disenchanted investors looking for alternatives to the existing mainstream options. And on the other, the traditional appeal of pensions and other more aggressive structures is no longer so

The increased interest in tax-efficient investments presents a significant opportunity for advisers, its not without it challenges though - not least getting a whole of market view. MICAp addresses this need head on, saving advisers considerable time and money

12 EIS Magazine January/Febuary 2015

Time is Money

investors with suitable EIS investment propositions has not been easy until recently. The wide field of EIS providers has always been somewhat fragmented, and even today there are relatively few that are big enough to have made it onto many advisers radars.

More importantly, theres a serious lack of standardised data about the various investments available, and assessing and comparing risk is still seen by many advisers as a daunting and time-consuming challenge that puts a great many off the idea altogether.

Plugging the Information Gap

Not that being put off is a good enough excuse for not doing anything about EIS investments, Marris says. Post-RDR, independent advisers are required to consider all of the market when making recommendations and the FCA has made it perfectly clear that it considers EIS products to be fully mainstream. An IFA who didnt at least consider EIS and VCT propositions could find himself being asked why not.

Thats a particular horror for some advisers, because the FCA and compliance also requires them to document their client advice in detail, and to be able to justify in retrospect why they plumped for one option or the other. Without a standardised platform on which to compare and process these diverse and often small-

scale funds (many issues are raising less than 10 million at a time), the implications for due diligence and record-keeping appear sobering. A significant point, given that the rising cost of PII insurance is a particularly timely reflection of the mounting pressures that advisers face.

Lets remember too that the time savings that can be achieved are considerable. Administration is always one of the largest drains on profitability, Marris says, and being able to access uniformly-organised information across a range of products can make a serious difference. Time is money, after all.

Its Not A New Idea.

Hence the decision, Marris says, to put tax efficient investments on the same sort of comparison portal that any consumer buying insurance or cars or holidays is already taking for granted. A sort of GoCompare.com that enables clients and their advisers to achieve quick and incisive comparisons of investment proposition, risk, sector, investment horizon and so forth.

All of it backed up by a unified system of Morningstar-like rating and risk assessment which ought to enable advisers to whittle down the options in a very time-efficient manner. As standard and alongside all key data in an investment product, MICAP will

An IFA who didnt at least consider EIS and VCT propositions could find himself being asked why not.

strong as it was. Changes to the lifetime contribution limit, and a less tolerant HMRC in respect of highly structured schemes, are literally driving higher earners to seek out new ground that can help them optimise the tax efficiency of their investments.

To complete the picture, of course, are hundreds of small and early-stage companies which are becoming disenchanted with the growing difficulty they face in raising funding from banks, some of which are still unwilling to lend. A situation which has been clearly understood by the Government and by HMRC - both of which are throwing their full weight behind the EIS, SEIS and VCT concepts.

And yet the task of connecting


Time is Money

assess and score the intrinsic risks, such that the adviser can quickly see MICAPs view of where the risk impacts are.

The more in-depth reviews are based on detailed assessments by MICAPs own specialist team. There are dozens of online tools designed to make life easier - from being able to download product brochures and application forms, to creating personalised date stamped print-outs to record the advice process and from sorting, filtering and comparing products to building and saving bespoke portfolios and contacting the promoters/managers directly. Theres also scope on the website for a user to record his own ratings and favourites for future reference.

120 Funds at the Click of a Mouse

Thats only a small part of the service, obviously. The growing list of investment schemes currently listed on MICAPs portal can be sorted at the click of a mouse according to their managers, their promoters, their offer type (EIS, VCT, SEIS, BPR etc), their launch and close dates, and of course their fundraising targets. Information about any investor restrictions (UCIS etc), sector and fund structure are all on tap in a fully comparable manner. Investment schemes can then be shortlisted and selected with another couple of clicks. It doesnt get much simpler than this. Keeping Up With the Paperwork

But, for many advisers, the ability to achieve a standardised record of the transaction, whether its a purchase or just a recommendation, is also key to making the whole proposition easier and more time-effective for advisers. Marris says that easing the burden of compliance and administration is

a fundamental element of the MICAP system that should help to ensure the utmost efficiency for users.

Finding Out More

MICAPs Fund Finder is available to all registered users who will be able to see a complete listing of all the products on the Fund Finder, access the IMs and view some of the key data, all for free. The full data set and risk impact assessments together with all the tools are only available to premium users. Premium Subscriptions start from as little as 50pm for an IFA firm with up to 5 users.

To find out more, please visit www.micap.com and register for a free account. If you would like to know more, please contact them on [email protected], mention this article and they will arrange a WebEx demo to show you how you can benefit when using the MICAP Fund Finder. EIS

Data on over 120 investments a click away


EIS and the Alternative Investment Market Shane Gallwey, Fund Manager at the Guinness AIM EIS 2015

Investing in AIM shares can be a high risk activity, with the potential for large gains but also for losses. An EIS investment fund is a particularly effective way of achieving a diversified portfolio, within which gains are free of Capital Gains Tax and losses can be offset against the clients tax bill with EIS Loss Relief.

We launched the Guinness AIM EIS 2015, a follow on from last years Guinness AIM EIS 2014, precisely because we recognise the opportunity that combining AIM with EIS offers. Investing in AIM stocks also helps achieve a timely exit after three years - something that is not always possible when making unlisted EIS investments.

AIM is a Stock Pickers Market

A review of the AIM market shows that it is not an investable index in itself, but rather a stock-pickers market. Since its launch in 1996 the FTSE AIM All Share index has

fallen by 30%, against a 77% growth in the FTSE 100 over the same period. The art of achieving gains, then, lies in careful stock selection, not in index tracking.

Structurally, the largest sector on AIM comprises the higher risk mining and oil exploration companies - but there are also a considerable number of early stage technology companies, cash shells and overseas companies. The mining and oil exploration companies are typically not EIS qualifying and the early stage technology companies, cash shells and overseas companies are do not fit with our investment approach. We favour more established businesses, preferring a demonstrable track record, a stable management team and visibility of profits in the short term. AIM provides access to companies at a range of development stages.

For the Guinness AIM EIS funds we only invest in newly issued shares with EIS Advance Assurance from HMRC, to ensure that they are EIS qualifying.

Company Coral Products Plc Ergomed Plc Software Radio Technology Group Plc

Market Capitalisation 8m 46m 23m

Sector General Industrials Pharmaceuticals Tech Hardware

Employees 110 90 47

Turnover 17.2m 15.1m 6.1m

EBITDA (pre exceptionals) 1.4m 1.8m -1.5m

Dividend yield 3.7% n/a n/a

Description Coral Products are specialists in the design, manufacture and supply of injection moulded products across a wide range of industries.

Ergomed plc is a profitable UK-based company, dedicated to the provision of specialised services to the pharmaceutical industry and the development of new drugs. It operates globally in over 40 countries.

The group is the global leader in Automatic Identi-fication System (AIS) based maritime safety and security systems.

Some of our recent investments include the following:


EIS and the Alternative Investment Market

The Exit Advantage

The EIS rules state that an EIS investment must be held for at least three years to maintain the tax reliefs, but in practice it can take considerably longer to exit some of these investments. Investee companies are usually private, and therefore the shares are illiquid. This can result in investors being trapped in an EIS investment for far longer than they originally intended.

This is where the advantages of having a portfolio of AIM-listed shares can make a difference. We launched our first Guinness AIM EIS fund in 2013 because we recognised the attractions of having underlying investments quoted on an exchange such as AIM, which provides a visible exit route. We have indicated an intention to offer investors a variety of exit routes which include a sale of shares and return of cash proceeds, an in specie distribution of shares to their preferred broking account or a continued management of their AIM shares as an IHT-exempt portfolio.

Liquidity of AIM companies varies widely, with some stocks frequently traded and others only trading a few times a month. Recent changes such as the abolition of stamp duty for AIM companies and allowing the inclusion of AIM companies in ISAs has seen a noticeable increase in both trading and liquidity. We have a preference for investments where the liquidity is likely to facilitate a straightforward market sale of the funds position.

We have indicated an intention to offer investors a variety of exit routes which include a sale of shares and return of cash proceeds


Claiming Tax Relief

With EIS investments, the process for claiming EIS income tax relief or capital gains tax deferral is somewhat elongated. First, the underlying investments need to be made into investee companies that have already been trading for four months. If a company has not yet commenced trading, it cannot request EIS certificates for its investors until it has met this requirement.

An EIS certificate is issued for each investee company. This works well for a single company investment, but if a client has subscribed to an EIS fund, he or she could easily end up with a dozen or more EIS 3 certificates that need to be completed and submitted to the revenue. To make matters worse, these can arrive at irregular intervals over an 18 month period - meaning that investors inevitably misplace some of them.

HMRC s Approved Fund structure which we have adopted goes some way to addressing this issue. As an Approved Fund, the fund manager can issue only one EIS certificate for all the investments called an EIS 5 certificate for investors to claim relief on their total subscription.

This greatly simplifies the administrative burden for investors as well as the process for claiming tax relief, and this is why we have adopted this structure for our Guinness AIM EIS funds. It is not a perfect solution the EIS 5 certificate is only issued once 90% of subscriptions to the fund have been invested, so investors may still need to wait 12 months or so to receive this certificate.

Name of EIS Guinness AIM EIS 2015

Investment Focus AIM-listed companies that qualify for EIS Relief

Target Size 10 million

Closing Date 6 April 2015

Target Investment Subscription Targeting full investment of subscriptions in the 2015/16 tax year. EIS Income Tax Relief can be claimed in the 2015/16 tax year or carried back to the 2014/15 tax year

Minimum Individual Subscription 10,000

Investment Manager Guinness Asset Management Limited

Expected Life up to 4 years

Regulatory The Board of HMRC has approved Guinness AIM EIS 2015 as an approved investment fund within the terms of section 251 of the Income Tax Act 2007.

Fees and Charges

A recent survey of EIS investors highlighted the high (and sometimes opaque) fees associated with EIS funds as a key concern. The relatively small scale of EIS funds compared to more mainstream investment funds, coupled with a high administration burden, does account for some of this expense, but there are certain things that fund managers can do to ease this burden for investors.

One such example is charging fees to investee companies as opposed to investors. This means that all of an investors subscription is eligible for EIS relief, not just the portion net of fees. We do this where possible for our other funds. However, when investing in AIM listed companies, it is not normally possible to charge fees to the underlying companies as we are usually one of many subscribing investors. For our Guinness AIM EIS funds, we have taken an innovative approach and defer all fees other than those to your financial advisor. This maximises the tax reliefs and should enhance returns as more capital is deployed in the companies. EIS

HMRC has attempted to address this issue through the introduction of the Approved Fund structure

A recent survey of EIS investors highlighted the high (and sometimes opaque) fees associated with EIS funds as a key concern

EIS and the Alternative Investment Market


These are exciting times for the Venture Capital Trust (VCT) industry. According to figures published in September 2014 by HMRC, VCT inflows hit 440 million in the 2013-2014 tax year.

Thats the highest level since 2005/2006. More recent data from HMRC revealed the number of individuals claiming income tax relief on VCT investments increased by 25 per cent year-on-year for 2012-2013, the most up-to-date figures available.

Perhaps the recent changes to pension rules, and the fact that the amount individuals can pay into their pensions (both lifetime and annual allowances) has been on a downward trend in recent years, is helping to underpin support for the VCT industry. Investors who are finding themselves increasingly concerned about maxing out their pension contributions, and who therefore risk losing out on the tax benefits, could well be considering VCTs as a way to continue making tax-efficient investing part of their retirement plans. Whatever the reasons, the evidence would suggest that 20 years after they were first introduced VCTs are living up to their potential and being recognised by investors as a maturing investment class.

Backing Growing UK Businesses

Back in 1995, the UK government launched VCTs with the intention of supporting dynamic UK smaller

companies. A VCT is a listed company in its own right that pools money from its investors. Like other pooled investments, this allows it to invest in a range of underlying companies, which means it spreads risk across a number of holdings either in unquoted companies or in companies on AIM.

At the time it was acknowledged that, while such smaller businesses were responsible for generating a significant proportion of the UKs economic growth, many struggled to get the right type of funding needed to grow. By introducing a number of tax incentives designed to help encourage those investors prepared to accept the risks associated with investing in smaller, unlisted companies, it was hoped individual investors would be willing and able to pick up where government financial incentives for companies left off.

And, two decades later, those initial hopes appear to have been borne out. If anything, in the years since the recession, UK smaller companies have found it increasingly difficult to obtain bank loans and to issue debt in order to finance their growth ambitions. In that respect, for many companies funding from VCTs has been a lifesaver. According to the Association of Investment Companies (AIC) Going for growth paper on the VCT industry published last year, the total assets invested in VCT-qualifying companies stands at 3.2 billion, and for every pound of initial tax relief returned to

An IntroductionFor AdvisorsBy Richard Wazacz, Business Line Manager for VCTs at Octopus Investments

Back in 1995, the UK government launched VCTs with the intention of supporting dynamic UK smaller companies


investors, the average VCT investee company sees its turnover rise by 6.46. (Source: AIC: Going for growth, June 2014)

So thats the investment case made on behalf of the government and for UK smaller companies, but what about the average investor? Well it would be hard to argue that the majority of VCT investors are not drawn in by the tax reliefs, which are persuasive. Tax Incentives Associated With VCTs

For starters, investors can receive up to 30% income tax relief on the amount they choose to invest in each tax year. So, for example, if an investor puts 20,000 in a VCT before the end of the current tax year, they would be able to claim 6,000 off that years

income tax bill. However, the amount of income tax relief an investor can claim in any single tax year is capped at the first 200,000 invested, and cannot exceed the amount of income tax theyre expected to pay. After the investment is made, and after the investor receives their VCT share certificate and tax certificate, they can contact HMRC to have their tax code adjusted, which would mean theyll immediately start paying less tax. Alternatively, if they invested at the

end of the tax year, they could apply for an immediate repayment or claim tax back through their self-assessment.

Its also worth stating that investing in a VCT is totally separate from investing in an individual savings account (ISA). So, even if an investor uses their full ISA allowance for the current tax year, they would still be able to contact HMRC to claim income tax relief on a VCT investment up to 200,000.

In addition, any dividends paid out by the VCT are tax-free, so investors dont have to declare them on their tax returns or their self-assessment forms. This is likely to be another compelling reason behind the growth of VCTs. While dividend payments arent guaranteed, many VCTs have a dividend paying target and investors

Investors can receive up to 30% income tax relief on the amount they choose to invest in each tax year

if an investor puts 20,000 in a VCT

before the end of the current tax

year

THEY CAN claim 6,000 off that years income tax bill.

VCT


20 EIS Magazine January/February 201520 EIS Magazine January/February 2015

can usually choose to take their dividends as income, paid directly into their bank account or reinvest the dividends into the VCT to gain further income tax relief.

Finally, if the VCT shares increase in value in the time in which they are held, theres no capital gains tax to be paid when it comes time to sell them. Investors should note, however, that VCT shares should be held for a minimum term of five years, and if they are sold before then, the investor will have to repay any upfront income tax relief.

Understanding the Risks

Any potential investor who is considering the advantages of VCTs should be very clear about the risks too. Regardless of the investment strategy employed, when investing in a VCT, capital is placed at risk. The value of the investment could go down as well as up, so an investor might get back less than they invest. Smaller companies carry significant risks and they dont all succeed. While they do have potential for high growth, they

generally have a higher failure rate than large companies, which is why a VCT is considered a high risk investment.

The performance of a VCT can also be more volatile, which means that over time the value could fluctuate significantly. When it is time to sell there is a chance that the investment will have reduced in value. There are minimum investment limits and VCTs certainly wont be suitable for everyone. In addition, tax treatment depends on personal circumstances and tax rules may change in future. In the case of VCTs, tax relief also relies on the companies held maintaining their VCT-qualifying status. With all this in mind, any decision to invest should always be taken after an investor has talked to a financial adviser about their personal circumstances.

How are VCT Shares Bought and Sold?

The usual way to buy shares in a VCT is by applying to the company managing the VCT when they have

An Introduction for Advisors

VCTs are listed on the London Stock Exchange so you also have the option of buying second-hand VCT shares through a stockbroker, just like other stocks


an offer open. A financial adviser will do this for you, but with some companies you may be able to apply directly. VCTs are listed on the London Stock Exchange so you also have the option of buying second-hand VCT shares through a stockbroker, just like other stocks. You will be able to take advantage of any potential income or growth if you buy second-hand VCT shares but you wont be entitled to the initial income tax relief. In addition, even though you cant claim any income tax relief on second-hand shares, the investment would still count towards the initial 200,000 ceiling for income tax purposes.

You can sell VCT shares on the London Stock Exchange. However, the initial income tax relief is only retained after the shares have been held for at least five years. Opportunities to sell VCT shares in this way may be limited, and because VCT shares bought on the secondary market do not qualify for 30% income tax relief they invariably trade at a discount to the Net Asset Value (the combined value of the underlying investments). Alternatively, many VCTs buy back their own shares

and may offer you a better price. How often this happens depends on a number of factors, including whether the VCT has enough funds available and it may be unable to purchase them at certain times of the year (for example, closed periods around financial reporting announcements). If you think you may want to sell your VCT shares in the future, you should check whether the fund management company offers a share buy-back scheme, and what discount they typically apply.

A Promising Future

So whats next for the VCT industry, and how likely is it that such growth can be sustained? Of course, as long as VCTs keep pushing to enter the investment mainstream, its likely that new VCT managers will emerge, some of which may not have the sort of investment expertise required to successfully invest in smaller companies. It therefore makes sense to talk to a financial adviser who can help investors find a VCT that fits their investment goals, whether they are looking for tax-free income, long-term

growth potential or to preserve their original capital.

It has been interesting to note in recent months that while talking about fundraising capacity, many VCT providers have stressed the need to balance the pursuit of new investment money with the need to deliver good returns to existing investors. By its very nature, the number of good quality VCT-qualifying smaller companies is a relatively small pool, but considering the billions of pounds invested in open ended investment companies by UK investors (a large proportion of which will be held in funds with disappointing returns and offering no tax incentives) it doesnt appear that demand for well-managed VCTs where the performance of the underlying companies is considered just as important as the tax benefits will outstrip supply any time soon. EIS

Octopus currently manages more than 400 million for VCT investors and is the largest provider of VCT in the UK. We recommend that investors seek investment advice before investing.

Remember that the shares of smaller and/or unquoted companies are likely to have higher volatility and liquidity risk than other types of shares quoted on the London Stock Exchange Official List. Please note that the tax reliefs associated with VCT investments will depend on the individual circumstances of each investor and may be subject to change. The availability of tax reliefs also depends on the investee companies maintaining qualifying status.

An Introduction for Advisors


Technology is rapidly transforming our lives, and the scale and pace of that change means that it now represents one of the most exciting areas of opportunity for investors - just take a look at the chart below. Whats more, UK companies are at the forefront of this wave of innovation. Gaming, E-commerce and Fintech Lead the Way

Its clear that the growth potential of the sector is huge. And the key sectors driving this growth, for which the UK can be seen as global leaders, include gaming and gamification, e-commerce and financial technology, widely known as fintech.

You might already know that many major gaming franchises, including Grand Theft Auto and Tomb Raider,

have been developed in the UK, and that the country is home to some of the worlds most innovative games developers. But gamification is an extension of this success - applying game design and thinking to non-game contexts, so as to increase engagement in everything from education to employee motivation.

Britains dominance in the world of online retailing might come as more of a surprise. But yes, the UK was named the worlds leading e-commerce exporter, in a report published last year by OC&C Strategy Consultants in Partnership with Google. Indeed, Hal Varian, Googles chief economist, went so far as to say that the UK is one of the worlds strongest internet economies. Praise indeed.

Fintech, a relatively newly coined term, covers a broad range

of technologies developed for the financial services industry, and includes everything from mobile banking to commodity trading systems. Thanks to the Citys clout as a world leading financial centre, combined with the ingenuity of its tech sector innovators, the UK is regarded as a global powerhouse for fintech.

Looking ahead, the prospects are equally exciting. New areas of development now coming to the fore include wearable technology, the so-called Internet of Things (autonomously communicating appliances and so forth), and virtual reality - all of which are forecast to soar over the next five years. For investors with the requisite knowledge of these industries, there is a wave of emerging stars waiting to be unearthed in UK businesses that are

Investing in Leading Edge TechnologySuccessful investment in young, growing technology companies involves sharing all-important experience and expertise as well as providing essential capital, says Talon Golding, Head of Fund Relations & Sales at Mercia Fund Management

Its clear that the growth potential of the sector is huge.

currently pioneering innovations across these technology-driven growth industries.

The Mercia Method

As one of the UKs leading technology investors, Mercia Fund Management is at the forefront of this surging tide of innovation. Mercia works in partnership with pioneering technology-driven businesses in key growth sectors, aiming to offer both financial support and expertise to help accelerate future growth. By providing a blend of early-stage, development and growth capital, Mercia can invest in a wide range of opportunities whilst being strategically positioned to allocate follow-on capital to stars in the portfolio.

As a sector specialist, Mercia offers value not only in the pre-investment discovery, analysis and selection of high-growth opportunities, but, critically, in the support of those companies post-investment through a combination of senior-level experience in operational management and proven expertise in structuring and managing unquoted investments.

A Tax-Efficient Hybrid Structure

The key here is to offer investors a tax-efficient way to invest in the high

growth potential of the technology sector. And to this end Mercia has now successfully launched five investment funds using a hybrid Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) structure the latest being Mercia Growth Fund 4, which currently remains open to new investors.

The capital growth-focused investment strategy also squeezes the full benefits from the generous reliefs available under both EIS and SEIS. Beyond the upfront relief (30% and 50% respectively), investors have the ability to receive investment returns free from Capital Gains Tax (CGT) - and, should a given investment not perform, to restrict the risk to their capital through loss relief. Of course, there are also the potential benefits of Inheritance Tax (IHT) relief and CGT deferral/exemption to consider.

Getting the Right Mix

The result is to manage risk for investors seeking to add exposure to young growing technology companies to their overall portfolio, in search of attractive potential returns. The use of both EIS and SEIS has the potential to maximise the efficiency of this strategy.

We believe that a sensible approach is to target businesses with proven commercial traction, moderate

Examples of Companies Mercia Invests In

Mercias investments include companies leading the way in technical innovation and development, notable examples of which include:

nDreams - An innovative computer games developer and publisher, specialising in producing virtual worlds, with current developments focused on virtual-reality headset platforms from Oculus, Sony and Samsung.

Warwick Audio Technologies - A designer of highly directional Flat Flexible Loudspeakers (FFL), primarily for use by Original Equipment manufacturers (OEMs) in developing and manufacturing products for public and multiple listener spaces. The companys patented FFL technology offers OEMs a flat, flexible loudspeaker panel that produces a quality sound performance at low cost. Warwicks speaker is so thin it resembles a sheet of paper.

Smart Antenna Technologies - SAT has designed, developed and patented a new smart antenna technology that reduces the number of internal antennas required in current and next-generation cellular handsets, from six (typically to include DVB-H, Bluetooth, Wi-Fi, GSM, GPS, 3G multi-bands and 4G LTE) to just a single miniaturised antenna. Although some innovative solutions are already on the market to reduce antenna size and improve performance, SAT has an opportunity to further raise the bar for the industry.

capital requirements and competent, experienced management teams. Portfolio balance is also a key element of an effective investment strategy; deploying a blend of early-stage, development and growth capital across a diversified range of businesses.

Looking beyond the South East

Mercias deal flow is enhanced through its partnerships with nine universities, including Warwick, Birmingham and Leicester, and through an extensive presence in the UK technology sector. Mercia stresses that it is a national investor, with a strong focus on the often under-served Midland and Northern territories of the UK.

Flexible Access to Further Capital

Arguably the biggest issue for a growth enterprise is the ability to raise additional funding to support that growth. It is certainly rare within the technology world for a business to achieve its exit potential within a single funding round. The issue, therefore, is: where does this additional capital come from?

Many investment funds are tied to particular stages of business growth and, as such, for example, they might not be able to support their



Kuber Ventures offer investors access to some of the most innovative EIS investment opportunities around, managed by leading Fund Managers and all within a single platform.

Investors who qualify for EIS can benefit from:

30% upfront income tax relief on amount subscribed (up to a maximum investment of 1 million for the 2014/2015 tax year and/or 1 million carried back to 2013/14 tax year); 100% inheritance tax relief after two years (provided the investmentisheldatthetimeofdeath); Capital Gains Tax deferral for the life of the investment on amount subscribed; 100% tax free growth (provided income tax relief has been given and not withdrawn and disposal takes place more than threeyearsaftertheinvestmentbeginstotrade);

InvestorscanchoosefromarangeofEISfunds,creatingasingleportfoliowhichisdiversifiedacrossanumberofFundManagersandunderlyingportfoliocompanies,offeringtargetedspreadofbe-tween15-40companiesinatypicalportfolio.

FormoreinformationaboutKuberVenturesanditsrangeofEISPortfolioFunds,pleasevisitwww.kuberventures.com

CONTACT US10 Old Burlington Street, London, W1S 3AGT: +44 (0)20 7478 8540E:[email protected]

KuberVenturesLtd[FRN574987]isanAppointedRepresentativeofSturgeonVenturesLLPwhichareAuthorisedandRegulatedbytheFinancialServicesAuthority.KuberVenturesLtd,10OldBurlingtonStreet, London W1S 3AG, regis-terednumber:8693809,VAT:175929069Telephone: +44 (0) 20 7478 8540; Fax:+44(0)2070096601.

www.kuberventures.co.uk

TheMulti-ManagerEISPlatform

investments beyond a seed level. The result can be that investors are left vulnerable to later-stage investors who may heavily dilute the value of their holdings. In such cases its likely that later-stage investors will price their investment proposals heavily, knowing that the companys options are limited. But the converse is that a business may simply be starved of capital thats vitally needed for growth.

The Hybrid Advantage

Mercias hybrid approach, using a combination of EIS and SEIS funds, helps to bridge the total funding requirement for investee companies. Investment takes place in tranches, and the management is required to meet pre-agreed performance objectives before it can receive the next instalment of capital. This approach doesnt just reduce the risk for investors (since capital is only injected once agreed targets are met) it also allows management to focus its time and energy on growing the business, not on sourcing additional funding.

Mercia has now developed and optimised this approach to follow-on funding by creating an innovative venture capital model which includes

New areas include wearable technology, the internet of things and virtual reality - all forecast to soar over the next five years.

a later-stage direct investment vehicle that will be able to provide deploy the capital and resources required to rapidly scale, and ultimately to exit, the emerging stars from the portfolio.

Taking Scalability To the Next Level

This innovative model has been made possible through the advent of Mercia Technologies PLC, which listed on AIM in December, raising 70m. Mercia Technologies, the parent of the wholly owned subsidiary Mercia Fund Management, has been backed by key institutions including Woodford Investment Management, Invesco and Baillie Gifford.

The core objective of the business is to invest directly at a later stage

into the Mercia Fund Management portfolio (EIS and SEIS); the result is the potential for a single investment partner solution for highly scalable UK technology companies.

As a result, Mercia is able to offer an unrivalled degree of support to investee companies through an enhanced resource base, whilst allowing it to develop even stronger relationships with its portfolio. An in-house incubator is available at Mercias offices in Henley-in-Arden, Warwickshire, to help nurture early-stage businesses joining the portfolio.

We feel that the combined model also makes Mercia an attractive investment partner, strengthening Mercia Fund Managements position as a leading technology investor. EIS


Kuber Ventures offer investors access to some of the most innovative EIS investment opportunities around, managed by leading Fund Managers and all within a single platform.

Investors who qualify for EIS can benefit from:

30% upfront income tax relief on amount subscribed (up to a maximum investment of 1 million for the 2014/2015 tax year and/or 1 million carried back to 2013/14 tax year); 100% inheritance tax relief after two years (provided the investmentisheldatthetimeofdeath); Capital Gains Tax deferral for the life of the investment on amount subscribed; 100% tax free growth (provided income tax relief has been given and not withdrawn and disposal takes place more than threeyearsaftertheinvestmentbeginstotrade);

InvestorscanchoosefromarangeofEISfunds,creatingasingleportfoliowhichisdiversifiedacrossanumberofFundManagersandunderlyingportfoliocompanies,offeringtargetedspreadofbe-tween15-40companiesinatypicalportfolio.

FormoreinformationaboutKuberVenturesanditsrangeofEISPortfolioFunds,pleasevisitwww.kuberventures.com

CONTACT US10 Old Burlington Street, London, W1S 3AGT: +44 (0)20 7478 8540E:[email protected]

KuberVenturesLtd[FRN574987]isanAppointedRepresentativeofSturgeonVenturesLLPwhichareAuthorisedandRegulatedbytheFinancialServicesAuthority.KuberVenturesLtd,10OldBurlingtonStreet, London W1S 3AG, regis-terednumber:8693809,VAT:175929069Telephone: +44 (0) 20 7478 8540; Fax:+44(0)2070096601.

www.kuberventures.co.uk

TheMulti-ManagerEISPlatform


Tax andEligibility IssuesAn Overview of the Essentials for Advisers

A HNW Alternative to Pension Savings?

Weve said elsewhere in this magazine that a significant proportion of the money now coming into EIS and VCT has been effectively diverted from pension savings by last Aprils lowering of the lifetime pensions cap from 1.5 million to 1.25 million. For many, the loss of tax-efficient pension contributions is proving to be amply compensated by the alternative advantages of the upfront 30% tax rebate that comes with eligible EIS investments of up to 1 million; but for some, the 50% rebate on 100,000 worth of Seed Enterprise Investment Schemes (SEIS) may in fact prove better still.

Dont Forget the Other Benefits

But thats only the start, of course. All investors, including those who arent diverting pension savings but are simply seeking the better potential growth prospects from SEIS, VCT and the like, stand to benefit from a range of other incentives.

EIS

Funds invested in eligible EIS schemes enjoy 100%

exemption from capital gains tax (normally 28%), as long as they are held for at least three years. They are a useful repository for the receipts from any kind of asset disposal, allowing the bearer to defer CGT on any such gains for the life of the investment.

Even capital losses on an EIS investment can be offset against income in the year that

the loss arises, or in the previous tax year. For a top rate taxpayer the benefit equates to 35%

of the EIS shares value meaning that investor has a downside loss protection of 65 pence in the

pound by the time income and capital gains tax relief have been factored in.

Investments in EIS-compliant shares are capable of attracting IHT business property relief (BPR) to the value of the original investment, upon being gifted or upon death

Forgive us if you already know all of what follows in this feature. Indeed, most advisers will. But the ground has been shifting so extensively in recent years that there seems to be no harm in restating a few of the basics.

And with the arrival of relative newcomers like SEIS and SITR which may well prove to be an attractive route for alternative energy investors after April - it doesnt do any harm to re-state the obvious.


SEIS

The Seed Enterprise Investment Scheme regime (SEIS), launched in 2012, focuses mainly on smaller early-stage companies and offers an enhanced 50% income tax relief for individuals who invest in shareholdings of up to 30% of such companies. (As distinct from the 30% relief available to EIS investors.) The annual investment limit is set lower for such investors - 100,000 for individuals and a cumulative 150,000 for companies, subject to certain other restrictions.

In certain circumstances SEIS investments in this tax year may attract 50% CGT relief on gains made in the 13/14 tax year, a potential further 14% relief to add to the 50% income tax relief. SITR

SITR, which was introduced last April, is designed to benefit savers who fund so-called social enterprises (community interest companies, community benefit societies or charities), under very much the same sort of qualifying conditions as EIS. Although, as weve noted, some providers are examining ways of using them to achieve alternative energy concessions which are being withdrawn from EIS this year. This is a changing situation, and well be keeping you informed on developments.

The 30% income tax reliefs resemble those of the existing EIS regime, and the investment limit is also set at 1 million; but the conditions are more complex. The investor cannot own more than 30% of the recipient social enterprise; he cannot be an employee or paid director.

VCT

Venture Capital Trusts also qualify for a 30% income tax rebate, but the qualifying period has been set since 2006/2007 at five years instead of three years as previously, and as would be the case with EIS. (There is a proviso that the investor actually needs to have paid this amount of tax.)

Dividends are not liable to income tax on dividends, and there is no tax charged on realised gains, and no CGT upon disposal. The annual subscription limit is 200,000.

Because VCTs are listed companies in their own right, they may be purchased in the secondary market as well as when new. Thats a critical difference, but it should be remembered that liquidity may be an issue that may affect prices. Business Property Relief

As youd expect, the advantages of BPR schemes are focused solely on inheritance tax. There are no ceilings, and the eligibility comes in after two years rather than three, as with EIS. IHT relief is available at 100%, except for a reduced 50% rate on certain land, buildings, machinery or plant, and also on any quoted shares which give control of the company. (The emphasis with PBR is soundly on unquoted investments.) Cash balances sitting in a company will probably not be allowed against IHT after death.

BPR does not apply to enterprises that are not-for-profit or do not operate on a commercial basis. Lettings and property management are generally excluded. But farming, woodland management and hunting all count as trading for the purposes of the regulations.

The main caveat for investors is that HMRC approval of BPR eligibility is constantly vulnerable to review, including retrospectively. Changing circumstances at an eligible company can impact on its BR status, and should be monitored carefully. EIS

Tax and Eligibility Issues

SITR SEIS EIS

Maximum investment per individual 1 million 100,000 1 million

Income tax relief 30% 50% 30%

Capital gains tax free? Yes Yes Yes

CGT deferral? Yes No Yes

CGT relief? No 50% No

Minimum holding period 3 Years 3 Years 3 Years

Maximum per investee entity 344,827 (c285,000) over 3 years

150,000 5 million in any 12 months

Unique benefit Can apply to debt instruments as well as shares

Highest rate of relief and CGT holiday

Highest investment limit

As youd expect, the advantages of BpR schemes are focused solely on inheritance tax

Source: Baker Tilly

SUSTAINABLE TECHNOLOGY INVESTORS APPROVED EIS FUND 3 10 Million UK Sustainable Energy Fund

Your attention is drawn to the Important Notice at the end of this document and the risk warnings contained therein. Words and expressions defined in the Information Memorandum shall have the same meaning as in this document

Compelling investment opportunity in the sustainable energy sector STILs third EIS fund focused on UK sustainable energy assets

A management team with a 45% IRR track record The Sustainable Technology Investors Approved EIS Fund 3 (the Fund) offers exposure to a portfolio of sustainable energy companies operating within the anaerobic digestion (AD) and run-of-river hydro (Hydro) sub sectors, targeting superior risk

adjusted returns with an emphasis on downside mitigation, whilst taking advantage of EIS tax incentives.

The Fund Manager Sustainable Technology Investors Ltd (STIL) is based in London and authorised and regulated by the Financial Conduct Authority. STIL manages or advises on private equity investments and committed funds of over 113 million in the sustainable energy, technology and energy efficiency sectors. STIL has a sector specialist management team with a strong investment and development track record, particularly in AD and Hydro. STIL has a highly experienced Investment Team with a verified track record of 45% IRR from 55 sustainable energy and technology investments over 29 years.

Key Reasons to Invest Targeted cash returns of 1.25 for a net 70p invested (79% uplift).

This would represent a 16% IRR over the 4 year period, equivalent to a 30% IRR to an additional rate tax payer entitled to EIS income tax relief.

Downside risk mitigation sought at 90% of the subscription price with low cyclicality, predictable cash flows and asset backing whilst maintaining the potential for good yields and capital gain on exit.

HMRC Approved EIS Fund When 90% invested in first 12 months investors can claim income tax relief as if shares were subscribed for in the tax year 2014/15.

A proven Fund Manager who has already fully invested STIL EIS Fund 1 and invested more than 90% of STIL EIS Fund 2 within 8 months of fund close.

A management team with years of investment and development experience across AD and Hydro, an enviable track record and access to a strong pipeline of investment opportunities.

An exciting opportunity to access investment in the UK sustainable energy sector. Key features include revenues supported by long-term government policies and subsidies such as Feed-in Tariffs (FITs) and the Renewable Heat Incentive (RHI), whilst targeting attractive investment returns due to increasing energy demand and growing resource scarcity.

Investment Team Gordon Power Chairman, 30 years private equity investment and fund management experience. An overall track record of 29% IRR from 239 investments and a 45% IRR from 29 sustainable investments. Jim Totty - Managing Partner, 21 years experience in sustainable and clean technology, with 13 years private equity investment experience. A 30% IRR from 20 sustainable private equity investments. Nick Pople - Managing Partner, 22 years sector experience across sustainable energy and technologies, with 17 years private equity investment experience. A 36% IRR from 23 sustainable private equity investments.

Operating Partners Firglas Ltd (Firglas) a specialist renewables project developer and operator. Sourced and now developing, in partnership with STIL, an AD plant and two Hydro schemes in the UK.

STIL EIS Fund 3 - Investment Strategy An existing platform of two businesses available for co-investment and

a strong pipeline of development assets. Aim to provide Investors with a diversified portfolio of investments

which has a lower correlation to stock market movements. Focus on AD and Hydro the sub-sectors where FITS and EIS relief

can still be combined, the core investment focus of STIL EIS Fund 1 and Fund 2, and the areas where the Fund Manager has in-depth experience, an extensive track record and a pipeline of investment opportunities.

Downside risk mitigated by targeting asset backed companies with contracted third party revenues, proven technologies with warranties and UK government guaranteed FITs and possibly RHI revenues.

Fredrik Adams Founder and CEO of Firglas. Has worked with STIL since 2009 when he formed Adgen Energy Ltd, since acquired by Tamar Energy, now one of the largest AD operators in the UK. Simon Cordery Operating Partner who has worked closely with STIL since 2010. Significant renewable energy development experience, particularly in AD. Founder of Energy and Environment practice with Savills in 2006.

EIS Tax Reliefs Income tax relief at 30% Tax-free capital gains when shares sold Capital Gains Tax deferral Business Property Relief Loss relief against taxable income

Tax reliefs are dependent on investors individual circumstances and are subject to change. The availability of tax reliefs also depends on investee companies maintaining their qualifying status.

Example Investee Company STIL EIS Fund 1 and Fund 2 invested in Black Dog Biogas Ltd, a developer, owner, operator of AD plants in the UK. Its first project is a 499kW AD plant on the Isle of Wight. There is the potential to expand the plant up to 1MW in 2015 with further investment. Black Dogs Isle of Wight AD Plant under construction

Important Notice This document has been issued and approved as a financial promotion for the purpose of Section 21 of the Financial Services and Markets Act 2000 (FSMA) by Sustainable Technology Investors Limited (STIL), which is authorised and regulated by the Financial Conduct Authority (FCA), under reference number 221604 and whose registered office is at 31A St Jamess Square, London SW1Y 4JR. STIL has taken all reasonable care to ensure that this document is fair, clear and not misleading but the statements of opinion or belief contained in this document regarding future events constitute STILs own assessment and interpretation of information available to it at the date of issue of this document and no representation is made that such statements are correct or that the objectives of the Fund will be achieved. No reliance is to be placed on the information contained in this document. It is important that prospective investors read and understand fully the Information Memorandum relating to the Fund, dated November 2014, and the risks involved with the arrangements described in this document (which is only a summary of some of the information in the Information Memorandum). The opportunity described in this document is NOT suitable for all investors. Key risks are explained in the Information Memorandum and should be carefully considered. Investment in EIS qualifying companies are considered to be high-risk, including illiquidity, lack of dividends, loss of investment and dilution. You should be aware that shares and income from them may go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance and may not be repeated. An investment in smaller and unquoted companies carries a higher risk than many other forms of investment. The Funds investments are likely to be illiquid and difficult to realise. Prospective investors should regard an investment in the Fund as a long term investment; realisation of the original investment will be piecemeal and, in practice, may extend beyond 4 years. Accordingly your capital is at risk and you may lose all the money you invest. Tax reliefs are dependent upon an investors individual circumstances and are subject to change. Prospective investors should seek their own independent advice and then rely on their own independent assessment of the Fund; nothing in this document constitutes tax, financial, legal or investment advice. STIL is unable to provide financial, investment or tax advice. This document does not constitute, and may not be used for the purposes of, an offer to or invitation to treat by any person in any jurisdiction outside the United Kingdom. This document and the information contained in it are not for publication or distribution to persons outside the United Kingdom.

Sustainable Technology Investors Approved EIS Fund 3 Fund Terms Fund Size 10 million Fund Type HMRC Approved complying EIS Fund Investment Focus Anaerobic digestion (AD) and run-of-river

hydro (Hydro) Closing Date 02 April 2015 Target Return 1.25 on a net 70p invested Exit Strategy Liquidity targeted at 4 years Initial Charges 2% (plus up to 3% adviser fee if

applicable) Annual Charges 2% AMC (plus 0.5% admin charge) Performance Incentive Fee Zero until return hurdle of 1.16 (in

respect of every 1 invested) is reached 4p catch up between 1.16 and 1.20 20% on returns between 1.20 and 1.25

30% on returns above 1.25

For further information please contact LGBR Capital: Tel: 020 3195 7100 Email: [email protected] Web: www.lgbrcapital.com


Open OffersHighlighting some of the key tax efficient investment offerings currently available to IFAs

SEISEIS VCT OEIC IHT BpRInvestment Key:

Motion Picture Capital provides a platform for the development, financing and distribution of film & television content as part of the Reliance Entertainment Group. Other Reliance companies include Steven Spielbergs DreamWorks Studios. This HMRC-approved EIS Fund offers investors access to a robust capital preservation strategy with a unique charging and profit distribution structure. A direct equity participation in this slate of high quality film & television projects of a truly global scale adds significant upside potential. As with all investments, there is the potential for risk as well as reward: investors may not get back what they put in. EIS tax relief depends on individuals circumstances and may be subject to change.

* (Inc. initial charge)

T. 0207 025 8199E. [email protected]

Motion picture Capital - HMRC-approved EIS Fund

Minimum investment: 25,000*

Open22/12/2014

Close31/03/2015

EIS Magazine Issue 1

Documents

Transcript of EIS Magazine Issue 1