Venture Capital Schemes

November 29th 2017

Changes are to be made to the Enterprise Investments Scheme, the Seed EIS and Venture Capital Trusts. The aim is to target Venture Capital Schemes on companies where there is a real risk to the capital being invested, and will exclude companies and arrangements intended to provide ‘capital preservation’.

Incentives to encourage VCTs towards higher risk investments will include:

  • removing certain ‘grandfathering’ provisions that enable VCTs to invest in companies under rules in place at the time funds were raised, with effect on and after 6 April 2018;
  • requiring 30% of funds raised in an accounting period to be invested in qualifying holdings within 12 months after the end of the accounting period, with effect on and after 6 April 2018;
  • increasing the proportion of VCT funds that must be held in qualifying holdings to 80%, with effect for accounting periods beginning on and after 6 April 2019;
  • increasing the time to reinvest the proceeds on disposal of qualifying holdings from six months to 12 months for disposals on or after 6 April 2019;
  • introducing a new anti-abuse rule to prevent loans being used to preserve and return equity capital to investors, with effect on and after Royal Assent of Finance Bill 2017-18.

EIS and VCTs will also see increased limits for investments in knowledge-intensive companies:

The Government will legislate to:

  • double the limit on the amount an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies;
  • raise the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs to £10 million from the current limit of £5 million. The lifetime limit will remain the same at £20 million; 
  • allow knowledge-intensive companies to use the date when their annual turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of first commercial sale.

The changes will have effect on and after 6 April 2018. This measure is subject to normal state aid rules.