UK to boost tax appeal of EIS funds

Venture capitalists received a boost on Thursday when the UK government said it’s planning to offer investors in Enterprise Investment Schemes (EIS) immediate income tax relief. The scheme is designed to encourage investment in small- and medium-sized businesses, which the UK sees as an engine for economic growth.

Under the current scheme, investors can claim 30 percent of their EIS investment against income tax, but must wait until the fund finishes investing before they can submit a claim. The government signaled plans to allow EIS investors to receive tax relief immediately.

The changes follow previous government efforts to draw more investors into EIS vehicles. UK Chancellor of the Exchequer George Osborne revealed in his 2012 budget plans to increase the amount of capital an EIS-backed company can raise in any given 12 month period from £2 million to £5 million.

Backing the government’s efforts is industry trade body the British Private Equity and Venture Capital Association (BVCA), which in 2011 launched a framework to promote co-operation between angel investors and venture capital firms participating in EIS deals.

The BVCA has been working on a standard ‘term sheet’ for EIS investors to use that aims to provide angel investors confidence that they are transacting on the same terms as more influential venture capital firms.