Investors can no longer double up on tax benefits, the Chancellor has ruled in today’s Budget report.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) investing in renewable energy were cashing in subsidies and tax benefits of Renewables Obligation Certificates and/or Renewable Heat Incentive schemes. These were then being passed onto investors, alongside the income and capital gains tax allowances of investing in VCT and EIS schemes.
“To better target high-risk investment the Government will change the eligibility criteria of venture capital schemes to avoid subsidising low-risk activities that already benefit from certain government programmes,” stated the full report.
As well as restrictions on renewables, investment products will not be allowed EIS and VCT status if they practise share buy-backs and will prevent VCTs from returning capital that does not relate to profits on investment.
Simon Blowey, divisional director of Financial Planning at Brewin Dolphin called the changes “significant”.
“The majority of VCTs have income streams from government-backed renewable energy subsidies - which will no longer be allowed which previously gave a 30% income tax relief to the investor,” he said.
“HMRC have also fired an opening salvo against limited life structures - which offer investors maximisation of relief and an exit strategy over the underlying investment benefits.”
Association of Investment Companies director general Ian Sayers said that the Government continued to support the VCT sector and recognised its role as providers of finance to small and medium-sized companies.
“Sector assets are at an all-time high and demand for the VCT sector is strong, with £300 million raised in the current tax year to date,” he said
”The Government’s commitment to VCTs was shown by the confirmation that investors will be able to buy VCT shares via platforms. This will make it more straightforward for advisers and investors to purchase VCT shares in the same way that they buy other investment products.
“As expected new rules are to be introduced on enhanced share buy-backs and dividend payments arising from a reduction in share capital. We are confident that VCTs will successfully manage the impact of these changes, as they have done in the past, and will continue to meet the needs of investors.”