EIS schemes with renewable energy investments may no longer qualify for government-backed incentives, but investors can still benefit from both the incentive schemes and achieve Inheritance Tax exemption with Business Property Relief (BPR) qualifying assets.
According to a study conducted by Intelligent Partnership (IP) for its new EIS report, renewables have been the most popular EIS investment over the last three years, with the majority (58%) of advisers selecting this as their preferred investment sector.
IP’s research also found that, since 1998, 28% of all EIS investment offers have been in energy – 60 products in total. In its analysis of fundraising targets by sector, energy had the largest average across the market of GBP14.67m – almost GBP6m higher than the next sector average (technology).
Speaking at IP’s EIS Masterclass in March, Henny Dovland of TIME Investments said: “Conservative investors have favoured these large-scale, asset-backed investments with well-developed technologies underpinned by government incentives because they are predictable and therefore low risk.
“They no longer qualify under EIS but the subsidies – both Feed-in Tariffs and Renewable Obligation Certificates – haven’t disappeared. For BPR they continue to be great predictable long-term revenue producing assets.”
According to IP, many EIS investors will now have financial planning needs around mitigating the inheritance tax that their estates will be liable for.
Daniel Kiernan, Research Director at Intelligent Partnerships, says: “With rising asset prices and the nil rate band frozen, HMRC estimates that 5,000 additional estates will be pulled into the IHT net by 2018. The baby boomer generation are estimated to control 80% of private wealth in the UK and, as they head into their 60s, they are now thinking about how they can pass that wealth onto their beneficiaries.
“Holding assets that qualify for Business Property Relief is one way to reduce the IHT bill, and by virtue of their EIS investments, they will already have held BPR qualifying assets for the two year qualifying period required for IHT exemption. Advisers should bear this in mind. There is a three year window to purchase replacement BPR assets, so as their clients exit Renewable Energy EIS investments, there is an opportunity to reinvest in the sector and still benefit from the incentives via a BPR product. For clients who are reaching the point where IHT is a consideration, it would be a shame to let the qualification lapse and have to restart the clock.”
According to IP, if a renewable energy investment was suitable for a client within an EIS, it will be a suitable investment within a BPR product – and as such it will help clients start to take steps to mitigate their estate’s IHT bill.
Kiernan says: “A major benefit is that, unlike other estate planning solutions, if the client requires access to the funds in the future the investment can be liquidated and the funds freed up for other purposes – so clients are not forced to make irreversible decisions or lock money up for overly long periods. An investment into a BPR product could be a way of retaining the qualification for the relief without having to commit funds indefinitely.”