The recent Spring Statement included an announcement that the government will consult on how venture capital investments in start-up companies can be structured.

Venture capital schemes, including Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) deliver capital to start-up and small businesses while, subject to certain rules, investors qualify for tax-relief on their investments.

Patent Capital Review

The announcement comes after the government published the Patent Capital Review, aimed at unlocking £20 billion of long-term investment in innovative UK businesses, via venture capital schemes.

The new consultation is primarily aimed at understanding the funding requirements of innovative, knowledge-intensive companies, as well as how a new way of structuring Enterprise Investment Schemes (EIS) might work.

The ‘Financing growth in innovative firms: Enterprise Investment Scheme knowledge-intensive fund consultation’ document issued by HM Treasury said: The government sees the venture capital schemes as being increasingly focused on growth and innovation in the future. Evidence gathered during the consultation suggested that knowledge-intensive firms – which have high growth potential but are R&D – and capital intensive – have the most difficulty obtaining the capital they need to scale up. The EIS and VCT schemes are therefore being significantly expanded for knowledge-intensive companies. The government also announced that it would consult on a new EIS fund structure aimed at improving the supply of capital to such companies.

One of the ideas under consideration is to provide additional incentives to investors, including the possibility of exempting, rather than deferring, the gains on other assets when investments are made into an EIS.

However, it is understood that the government is not considering introducing a new EIS structure, reducing the three-year minimum holding period for EIS investments, or increasing the tax-relief available to investors.

VCT and EIS Tax-relief

Subject to certain criteria VCT, EIS and SEIS investments attract tax-relief, making them popular with those investors prepared to accept the significantly higher levels of risk associated with this type of investment.

VCT investments qualify for upfront tax relief equal to 30% of investments made in to new shares. If the investment is sold within five years, the tax-relief must be repaid.

EIS and SEIS investments qualify for tax-relief of 30% and 50% respectively. However, they must be held for at least three years, otherwise the tax-relief will be withdrawn.

Furthermore, gains on VCT, EIS and SEIS investments are exempt from Capital Gains Tax (CGT) and further relief is available if the investment is ultimately sold at a loss.

There are limits on the maximum tax-relief that can be claimed on VCT, EIS and SEIS investments.

Speak to us

The consultation closes on 11^th May 2018, and more information can be found by clicking here.

If you would like to know more about the government’s consultation or the tax benefits of investing in a VCT, EIS or SEIS please contact us, we’ll be glad to help.