How do hydro and AD compare with other investments that qualify for EIS? They are both asset-backed investments, with predictable cashflows, of which the majority will come from government-backed, inflation-linked subsidies. Generalist EIS investments will be made into third-party businesses that have a variety of different business models.
The returns on hydro and AD investments tend to be more conservative than those available from other underlying investments in generalist schemes, but are also quite reliable.
The exit strategy remains the same for renewables as with other investments, namely a trade sale of the assets or company to a yield-seeking investor or fund, three to four years after the EIS has been trading.
The political support is likely to continue for all forms of renewables until government targets are met. Whether new hydro and AD continue to be EIS-qualifying investments will depend on the rate of development of new assets.
There has, however, been a steadily growing market for EISs as the tax breaks are generous. Advisers just need to properly assess the underlying investments and make sure they match their clients’ appetites for risks.
Stephen Daniels is head of tax products at Time Investments
