The results of the Patient Capital Review will be known in less than a week’s time, after the Chancellor delivers his Autumn Budget. Any changes to EIS and VCT legislation may not make the national headlines, but they will be keenly awaited by a huge number in our industry, and it seems almost certain that they will not be kicked further down the road, as some originally speculated. It is likely that both the media and the government will be more likely to focus on the launch of a new Government-led fund, which will be focused on helping provide finance for innovative businesses. Whilst this will be welcomed, it should be noted that this will, in effect be a straight like-for-like replacement for the existing (£50bn) European Investment Fund.

Both the Patient Capital Review and the subsequent industry feedback and consultation, which has been rightly mainly centred on the trade bodies The EIS Association (“EISA”, looking after EIS and Seed EIS ) and the Association of Investment Companies (“AIC”, who represent Venture Capital Trusts) There has also been a good and varied representation from Investment Managers, Advisers, Analysts and key industry spokespersons and it is hoped that this has been listened to and digested inside Westminster.

The direction of travel is clear: HM Treasury is keen to make sure that any tax advantages provided to EIS, SEIS or VCT are focused in the right areas, providing equity capital to growth businesses, and in these instances, the Treasury are effectively sharing the risk of investment.

The general feeling is that relatively recent changes to the “Qualifying Companies” within VCTs has focused the Treasury more on EIS and Seed EIS. The reason for this focus and the likely change is that there are a number of investments that, whilst being absolutely legal and qualifying businesses, are effectively minimising the risk of the investment by being “Asset-Backed”, for example where a large part of the investment is acquiring freehold property, which holds its value. These types of investment are viewed as being “Capital Preservation” and against the spirit of the original legislation, and look certain set to be restricted in some way.

The restriction of freehold property within an EIS is reasonably easily dealt with, and as such the EIS opportunities with a large property focus, for example those focusing on Pubs, Crematoriums and Nursing Homes, will be looking very closely at the small print. There has also been speculation that investment into TV and Film productions will be partially or wholly restricted, again though it is very much hoped that a wider exclusion of media investments is not still on the table, as it would have potentially damaging consequences to one of the industries in which the UK is recognised as a world leader.

Whilst our Platform has always worked with a broad spread of investment opportunities, our focus (and name) has always been very much focused on true Growth Investments, offering real returns. Whatever Mr Hammond announces in response to the Patient Capital Review, we expect that he will not throw the baby out with the bathwater, and the legislation and tax advantages will remain in place for UK investors to get behind the smaller growth companies, that can truly create job opportunities and drive growth in the marketplace.

By David Lovell.



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