HMRC have just released their latest statistics for Enterprise Investment Schemes (EIS) IN 2017. The total amount raised in 2016/17 was £1,797m, down 8% on the previous year. The number of companies raising EIS monies also fell – by 2% - to 3,470.
IFA firms are unable to qualify for EIS.
EIS is considerably more popular than VCTs. The option to take 30% tax relief has given a major and sustained boost to EIS sales. For those not familiar with the EIS tax-saving incentives for investors, one of the main attractions is the offer of 30 per cent income tax relief on an initial investment. So, for someone risking £10,000 to support a company’s growth plans, the income tax relief can reduce the actual cost of the investment to only £7,000. The income tax benefit is just for starters. An investor can also bank any profit on the investment completely free of capital gains tax (so long as the shares have been held for at least three years) and benefit from inheritance tax savings after a two-year holding period. Furthermore, if an EIS investment proves to result in partial or total loss, the investor can set off 70 per cent of the loss against his or her top rate of income tax in the year of loss.
Get your calculator out and do the maths on a 100% fail! Even then the real loss for a 40% tax payer is just £4,200.
- The cost of the £10k is £7k
- The write off against 40% income tax is £2.8k
- The loss is just £4.2k
- Therefore the cost of the investment is just 42% of the amount invested for a CGT and IHT free investment. Not bad but you’ve still got to take the plunge, and there are clear hazards for IFAs.
Lack of research – mitigated by Allenbridge seem to give all funds the same ratings, and seem reluctant to stick the boot in. they published a report on the Ingenious Infrastrcture Ventures EIS report this week.
IFAC are visiting Hardman & Co next week try to improve the offering for members – see here.
FCA to regulate Claims Management Companies CMC.
FCA have decided to regulated Claims Management. The FCA has published draft rules outlining how it will regulate claims management companies when regulation passes to the FCA on 1 April 2019. Regulation will extend to Scotland, where firms are currently unregulated.
IFAC believe that most IFAs should look to increasing their permission to include this activity. It may be painful to achieve, but it allows you to take a cut of FOS compensation that you secure for clients that you may take over. Since some firms are taking up to one third, this is some very lucrative business, as outlined last week. https://ifac.eu/claims-management-be-regulated-fca
The FCA requirement includes a capital requirement – excellent news for IFAs who already have to retain a regulatory buffer. See FCA consultation paper here.
CMCs will also need to highlight any free alternatives to using the CMC, such as ombudsmen schemes, in marketing material and pre-contract disclosures.
CMCs will need to provide a potential customer with a short summary document containing important information such as an illustration of fees charged and an overview of the services they will provide.
FCA is also proposing that CMCs will have to record and keep all calls with customers for at least 12 months.
FCA will introduce the Claims Management Sourcebook: Conduct of Business sourcebook (CMCOB), containing rules that will apply specifically to CMCs.
The deadline for responses is to CP18/15 is 3 August 2018. The FCA intends to publish a policy statement containing final rules in the fourth quarter of 2018.
