What’s the difference between an EIS Fund and An EIS Company?
An EIS Fund is normally managed by an FCA regulated EIS Fund manager, who’s job is to identify and invest capital on behalf of its clients. The Information Memorandum (IM) for the fund will normally explain the EIS Fund Managers mandate and provide details regarding the types of companies that the Fund will seek to invest into.
An EIS Company is a single company which will normally have received HMRC Advance Assurance in advance of investment being concluded.
Types of EIS Funds
There are two broad types of EIS Funds: approved, and unapproved.
To be classed as HMRC approved the EIS prospectus must be reviewed and furthermore approved by HMRC.
If the approved fund invests at least 90 per cent of its assets in EIS approved investments within the 12 months following fund closing, investors in the fund will be treated as having made the EIS investments as at the date the fund closes, this provides a slight advantage over the unapproved route where the underlying investments will not be considered to have concluded until the underlying investments are made by the fund manager, which can take up to 12-18 months.
The benefit for an investor or advisor is that this defines which tax year that the investment is made, and therefore when income tax relief can be obtained.
There are several other requirements for an approved fund, with the fund being required to invest at least 90 per cent of the capital being invested within 12 months and the fund must also invest in at least four underlying companies and must not make any investments until it is officially closed.
Each of the Companies that an EIS Fund will invest into will need to be EIS qualifying.
Unapproved EIS Funds
The majority of fund managers tend to use the unapproved route as it provides more flexibility and will allow the fund manager slightly more time to make the right investments, as opposed to being under pressure to deploy funds quickly so that the tax reliefs can be granted quickly. For an unapproved EIS Fund the Fund manager has up to 2 years to invest funds, albeit the tax relief is only granted at the point that the underlaying investment is made.