Tom Hopkins fears the responses to the Patient Capital Review consultation may fall upon deaf ears and urges advisers to remember there is always a way forward

Judging by most of the media coverage of the Patient Capital Review, it is a worry that despite the wide-ranging consultation, the government has already made up its mind and could unleash a determined assault on the tax-efficient sector.

Let’s begin with a reminder how we have all understandably arrived at this confusion. The government undertook the Patient Capital Review in an attempt to review how the UK is supporting growth businesses, especially in a post-Brexit world.

So far, so good – but the consultation is also reviewing the effectiveness of the UK venture capital schemes – venture capital trusts (VCTs), the Enterprise Investment Scheme (EIS), Seed EISs and , SEIS, VCT, EIS and social investment tax relief.

As we have written for Professional Adviser more than once, following the 2015 changes to the rules that cover the government’s venture capital schemes, more capital than ever is flowing from these schemes into growth businesses.

Yet the government wants more changes and some of the feedback coming out of recent meetings suggest that is exactly what is coming – perhaps regardless of the feedback from the industry.

Changes On The Way

At this point it seems asset-backed EISs have been thrown under the bus. The government is not keen on a company building or buying any asset – for example, freehold or long leases – using EIS and it seems the industry has accepted that argument.

So, for instance, a pub company will no longer be EIS-qualifying. There are valid counterpoints, however, such as, even if there is an asset, there is operating risk that could mean the asset may be worth very little if the company in question fails.

Recent EIS investments into anaerobic digestion plants are a good example with some investors nursing heavy losses despite the supposed asset-backing. But it would seem that battle has been lost – one fund manager recently withdrew a VCT offer that focused on asset-backed deals.

It is also interesting the Treasury has stated that job creation alone is not enough – it wants innovation and growth to be part of the venture capital schemes’ story. This has resulted in investments in television and film coming under scrutiny, with both the Association of Investment Companies (effectively the VCT association) and EIS Association prepared to discuss film and television as excluded activities for EIS and VCT investments.

Again, given the important of the creative industry to the UK, good arguments exist for continuing with the status quo but these have seemingly been sacrificed for the greater good – in other words, a continuation of the EIS and VCT schemes …

It is unclear whether tax relief for VCTs may be part of the review although the greater than ever number of VCT offers out at this time of year suggests concerns leading up to the November budget.

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Source: Professional Adviser



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