Chancellor George Osborne has tinkered with the qualifying rules for companies pitching for startup and growth investment from business angels.
He explained the measures were to make the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) comply with European Union state-aid investment rules.
Osborne also said the changes would help high-growth companies seeking finance.
Under the new rules, SEIS companies seeking EIS or VCT funding for the first time will have to enter into the arrangement before they are 12 years old.
VCT investments will be capped at £15 million – but knowledge-intensive companies will have the scope to raise an extra £5 million, lifting their investment cap £20 million.
SEIS rule scrapped
The number of employees knowledge-intensive companies can employ also lifts from the current maximum of 249 to 499, which potentially brings a lot more firms into the VCT net for investors.
Osborne is also scrapping the SEIS rule that demands 70% of any funding raised must be spent before the company can enter into an EIS or VCT to raise extra funds for expansion.
As part of his sharing economy them in Budget 2015, Osborne also wants to broaden the appeal of the Social Investment Tax Relief (SITR).
The Chancellor has tweaked the rules to encourage investors to put cash into projects that have some community benefit.
To up the ante for investors, the tax relief on Social VCT investment is now 30%, dividends are exempt from income tax and capital gains tax on disposal of shares – matching the tax breaks of a SITR.
Community project funding
Full details of how Social VCTs will operate will be included in the Finance Bill 2015, to follow the Budget.
One important point for investors is that Social VCTs can put cash into community energy generation projects – whereas these were excluded from SEIS, EIS and standard VCTs in Osborne’s Autumn Statement.
One important SEIS rule that was overlooked in the Budget 2015 speech and associated published documents is whether investors will retain their capital gains tax break on disposing of assets to raise cash to buy a SEIS equity stake.
Currently, investors receive a 50% CGT exemption that is renewable each tax year.
No announcement was made regarding this important tax break for investors.
