An interview with John Glencross, CEO of Calculus Capitalby John Glencross / January 26, 2018 / Leave a comment
How has the Budget changed the rules for the Enterprise Investment Scheme and Venture Capital Trusts?
The changes will mainly affect the new tax year 2018/19 and it’s important to highlight that the main tax incentives for investors are staying the same—income tax relief at 30 per cent on both EIS and VCT, no tax on capital gains, deferral of capital gains tax payable on funds subscribed to EIS investments, and tax-free dividends from VCTs.
What has changed is that the Treasury will no longer give tax relief on EIS investments it believes are “capital preservation schemes.” That means tax-motivated, low-risk investments where the main return comes from the 30 per cent tax relief—the Treasury estimates schemes like this accounted for about half the EIS market. Going forward, the money will have to be invested into growing, entrepreneurial companies. This is a definite attempt to focus these schemes in line with the spirit of the original legislation.
How about the VCT changes?
These were less about capital preservation schemes and more about increasing the pressure on VCTs to invest a higher percentage of their funds into growing companies – the minimum is going up from 70 per cent to 80 per cent, with rest in low risk cash deposits—and to invest it faster. From April, VCTs will have to invest 30 per cent of the funds they raise within a year of raising them. That may cause a problem for some VCT managers because there have been some very large fundraisings recently that will now have to be invested more quickly than the managers might have expected, so the pressure on them to put the money to work will increase.
Why has the government made these changes?
Three main reasons: they were concerned about giving tax-breaks m…