Inheritance Tax mitigation appears to be becoming a critical reason why advisers are recommending EIS and its use set to boom this year, a report suggests.

The most common reason for recommending EIS among the 297 advisers surveyed was Income Tax relief, with 96% of advisers citing it as one of their top three reasons for recommending EIS. Some 76% cited Inheritance Tax mitigation.

Daniel Kiernan, research director at Intelligent Partnership, which carried out the report, said: "It's no surprise that advisers are expecting to invest more in EIS this year, as changes to our pension system have strengthened the investment case for tax-efficient investments like EIS.

“What's perhaps more unexpected is the number of advisers who are utilising EIS for their IHT benefits.

“Perhaps this reflects the financial planning needs of clients who are concerned about passing on their wealth, but who don't want to give us control of their assets or sacrifice any potential growth just yet."

The use of EIS is set to increase ‘dramatically’ amongst advisers, the report claimed. Lower pension limits and the threat to higher rate tax relief were cited as the two biggest drivers for increased use of EIS.

The adviser survey on EIS, commissioned by the Enterprise Investment Scheme Association financial planning committee, is the largest ever, claimed Intelligent Partnership.

Some 61% believed their use of EIS in client portfolios will increase within the next 12 months - an increase of 15% from the previous study.

The research was conducted online and at events including the PFS regional conferences from October to December 2015.

In addition to IHT mitigation, 57% of advisers stated that portfolio diversification was a primary reason for choosing EIS. What didn’t seem to concerns advisers, with only 10% citing it as a reason, was the opportunity to invest in a particular sector or business.

When respondents were asked to share their opinions on what single change or innovation would improve the EIS market, the most common suggestion was for increased levels of transparency, followed by the ability to better compare EIS schemes, making product sourcing, evaluation and selection easier.

Keith Richards, CEO of the Personal Finance Society, said: “Tax efficient investing remains a priority for many clients and the society has seen increased interest from its members for more continued professional development in this area.

“The dedicated sessions on client suitability and the role of EIS at our regional conferences evidenced that this is a complex area of investment that demands sound technical knowledge. Executed well, the financial planning community can add real value to client relationships.”

A majority of 56% of advisers thought that the investment manager’s performance track record was the most important consideration when selecting an EIS. This contrasts with results from 2014, where the most important factor given by 65% of advisers was the reputation and size of the investment manager. However, this year that figure dropped to 37%.