Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.
VCTs and EIS: Budget 2015 update
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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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. The above article is based on our interpretation of the Budget 2015 and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances.
VCTs should be regarded as higher risk investments. They are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years. Past performance is not an indication of future performance. Share values and income from them may go down as well as up and you may not get back the amount originally invested. Owing to the nature of their underlying assets, VCTs are highly illiquid. Investors should be aware that they may have difficulty, or be unable to realise their shares at levels close to that that reflect the value of the underlying assets. Tax levels and reliefs may change and the availability of tax reliefs will depend on individual circumstances. You should only subscribe for new VCT shares on the basis of the relevant prospectus and must carefully consider the risk warnings contained in that prospectus.