There were no changes to the current tax reliefs available on Venture Capital Trusts and Enterprise Investment Schemes and the Government remains committed to these schemes.
However the Budget did include some technical changes to the rules governing which companies are eligible to receive investment from tax-advantage investment schemes to support smaller companies (Seed EIS, EIS and VCTs), in order to comply with European Union regulations on state-aid to businesses.
The key “tweaks” are that future investments will be restricted to companies less than 12-years old other than where an investment “will lead to a substantial change in a company’s activity”. Currently there are no restrictions on the age of a company that is eligible to receive VCT or EIS investment.
Additionally, a total cap of £15 million is being introduced on the amount of tax-advantaged funding a business can receive. This rises to £20 million for companies that meet certain conditions demonstrating they are ‘knowledge intensive’.
The Budget also confirmed its intention to launch a separate Social Venture Capital Trust allowance, to encourage investments into social-impact projects, with similar tax reliefs to VCTs in a future Finance Bill.
The VCT and EIS industry is used to successfully accommodating periodic changes to investment criteria and, as with previous changes, we do not believe these will impact existing investments held by VCTs, but relate to future investments they make. Therefore any shift towards earlier phase businesses by already well-diversified VCTs is likely to be gradual.
We expect demand for VCT investment to be supported as a result of the reduction in the pensions lifetime allowance, as higher-earning investors with a high tolerance to risk who have fully utilised their ISA and pension allowances look for alternative tax-efficient investments.
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