Potential VCT and EIS changes – keenly anticipated for 12 months due to the government’s Patient Capital Review – should finally be revealed in the Budget. Here, writes Tom Ellis, is all you need to know on the subject …

First of all, the current period of venture capital trust (VCT) and Enterprise Investment Scheme (EIS) rules, coupled with pension rule changes and low market returns pushing investors to riskier asset classes, seems to have fostered the most attractive VCT and EIS market for investors in the schemes’ histories.

VCTs experienced their second-best inflows in 2016/17, according to official HM Revenue & Customs figures. And, while EIS saw a year-on-year 2% drop, the £1.89bn raised was still the second highest amount invested through the scheme since it was launched 24 years ago.

The investment levels suggest the two schemes are as favourable now to investors as they have been since their respective beginnings in the early and mid-1990s.

As LGBR Capital head of tax efficient investment Jack Rose put it: “Very simply, the government recognises there is a funding gap in the UK, compared with other nations such as the US and China, which are more efficient at getting smaller, start-up businesses to scale up successfully.”

This point is particularly important as the UK gears up to leave the European Union and so looks set to lose inflows from the European Investment Fund.

In light of this trend, and to the potential disappointment of tax-efficient investors, Rose reckoned the government was unlikely to make VCT or EIS tax reliefs more attractive. “They just don’t need to,” he said.

Rose would also not be surprised if the government were to continue the direction of travel it has taken in recent years by tightening the rules by which companies qualify for funding and on what the money can and cannot be used for.

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Source: Professional Adviser



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