Share buybacks carried out by Venture Capital Trusts (VCT) will no longer qualify for tax relief from April 2014, the government has said.

The Autumn Statement revealed that any investments linked to a VCT share buyback or made within six months of selling shares in the same VCT will not qualify for tax relief.

A share buyback is where a VCT launches an offer to existing shareholders to cash in their shares, having originally achieved a 30% tax credit on their investment and held the shares for at least five years, on the condition they then reinvest into a new offer.

The clamp down comes after HMRC had already warned it was looking at VCT enhanced buybacks in the April Budget.

Oliver Bedford, manager of the Hargreave Hale AIM VCTs, said the change is ‘unfortunate but necessary’.

“When correctly delivered, enhanced share buybacks help VCTs deliver investment capital to small British companies on an on-going basis,” he said.

“Unfortunately, that has not always been the case, resulting in this unfortunate but necessary amendment to the legislation to ensure the VCT scheme continues to provide value for money to the taxpayer.”

The government is also considering changes to VCT rules around the use of converted share premium accounts to return capital to investors, in cases where this return does not reflect the profits on the VCT’s investments.

It also plans to change VCT rules to allow investors to subscribe to shares via nominees, thus facilitating the use of these vehicles by retail investors



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