A new era for VCT and EIS Investments as rules change

There has been a major overhaul for venture capital trusts (VCTs) and enterprise investment schemes (EISs).

The changes come as a response to a government consultation paper published last summer on “patient capital”. The paper criticised some EIS and VCT providers, saying, “Industry estimates suggest that the majority of EIS funds … had a capital preservation objective in tax year 2015/16, and around a quarter of VCTs have investment objectives characteristic of lower risk capital preservation”.

Keith BonnerDirector and lead IFA at HSC Financial Services of Brighton says “Two key points emerged from the new rules:

  • ‘Risk to capital’ condition  – VCT and EIS investments must now be made in companies that have objectives to grow and develop, and where there is a significant risk of loss of capital, after allowing for tax relief. This is to prevent an emphasis on capital preservation that was criticised in the consultation paper.
  • Tax reliefs – There were no changes to the levels of tax reliefs given to VCTs and EISs. The main rate of income tax relief for subscriptions remains at 30%. The relief can be clawed back if the investment is sold prematurely or ceases to qualify, with clawback periods remaining at five years for VCTs and three years for EISs. Similarly, the capital gains tax advantages of VCTs and EISs were left intact.”
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