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Autumn Budget - Venture capital schemes

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22 November 2017
Risk to capital condition

A new condition is to be introduced to the EIS, SEIS and VCT rules to restrict the relief to companies with the objective to grow and develop and where there is a significant risk of loss of capital.

The measure addresses a concern that a significant subset of such investments has become focused on capital preservation, where the tax relief provides most of the return for an investment. 

The new ‘risk to capital’ condition will be a principle based test, considering all relevant factors, to assess if the company is a genuine entrepreneurial company. It is key to this sector, therefore, that clearances continue to be given by HMRC before monies are invested in such schemes.

Encouraging investments in knowledge-intensive companies

On the other hand, the rules are also being changed to encourage greater investment in knowledge-intensive companies. This is a company that satisfies the various conditions such as; engaging in IP creation and having a certain number of skilled employees. The annual EIS limit for investment will be increased from £1m to £2m provided that anything above £1m is invested in knowledge-intensive companies.

The amount of annual EIS and VCT investments that knowledge-intensive companies can receive will be increased to £10 million.

Venture Capital Trust (VCTs)

Where two VCTs merge there is a problem that income tax relief can be withdrawn from the investor. The new measure limits the scope of anti-avoidance rules relating to share buy-backs by VCTs to try and solve this problem. 

Various measures are to be introduced to help VCTs to continue to focus on long-term investments in higher risk companies.

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