Business leaders want Seed Enterprise Investment Scheme (SEIS) tax breaks for startups to be extended to Venture Capital Trusts (VCT) as a boost to the economy.
Simon Walker, director general of the Institute of Directors is urging Chancellor George Osborne to improve the range of tax breaks available to business angels.
He extolled the success of SEIS and the Enterprise Investment Scheme (EIS) but wants VCTs to have the same inheritance tax exemptions both business funding scheme s offer investors.
“These alternative finance schemes are fuelling the vibrant small businesses that drive our economy,” he said.
“The investors are mostly ordinary people backing ideas with an eye to their own future and in many cases backing community projects with their money.
Pension supplement
“VCTRs are often seen as a sensible supplement to pensions.
“Relief on for pension contributions, I think it’s likely VCTs will become a good alternative for long-term investment, admittedly with a degree of risk, which is why we need a change in inheritance tax relief.”
Letting venture capitalists play to the same rules as SEIS and EIS would cost The Treasury little in lost tax, argued Walker, but would give growing businesses another source of vital funding.
VCTs sit between SEIS and EIS on the funding ladder.
The maximum investment in a tax year for a SEIS is £100,000, with an absolute cap of £150,000 over the three-year life of the project.
The investment limit for a VCT is £200,000, while the top threshold for an EIS is £1 million.
“I believe the VCT investment limit should go up to £1 million or perhaps even a hybrid investment of up to £1.5 million should be allowed for combined VCT, SEIS and EIS investment,” said Walker.
Imbalance with SEIS
Shares in SEIS and EIS companies generally qualify for business property relief if they are held for two years, which makes them exempt from inheritance tax.
VCTs cannot qualify for business property relief.
Also SEIS and EIS investors can claim loss relief against other income if an investment fails, but this relief is unavailable to VCT investors.
SEIS and EIS tax breaks give investors deferral relief against capital gains tax due on assets sold to raise the cash for investment, and again this is not available to VCTs.
Overall, the tax breaks for SEIS and EIS are more generous than those offered to VCTs, and this is the imbalance Walker seeks the government to redress.
