Financial Secretary David Gauke has announced the government wants to ease replacement capital rules in Venture Capital Trusts (VCT).
Although any measure will need to pass strict European Union state aid tests, Gauke expects them to come into force within a few months without any problem.
Replacement capital rules relate to restructuring the share capital of a company when a shareholder buys out the stake held by one or more other shareholders.
In his summer Budget 2015, Chancellor George Osborne put forward changes to replacement capital rules that effectively outlawed VCT buy outs.
Business angels involved in VCT investment were concerned the rules announced in the Budget restricted buy outs and made the investments less attractive.
They also predicted business investors would turn away from VCTs, leaving a funding vacuum for entrepreneurs desperate for cash to grow their companies.
Business angels
“I’m committed to making VCT replacement capital rules more flexible,” said Gauke.
“The industry has addressed the government over concerns about what happens when an investor inputs cash into a business and buys secondary shares.
“New rules announced in the Summer Budget 2015 complicated this, so I have decided to try and simplify the process.”
Gauke also confirmed Treasury officials were already discussing the changes with the European Union aiming to seek the earliest possible approval.
“This is not only a problem for the industry, but an issue for the government because of constraints placed on them by the EU,” said a spokesman for the Association of Investment Companies.
VCT role in the economy
The spokesman also commented that not all the VCT changes on the table were welcome to investors, but they accepted some things have to change in order to gain EU state aid approval.
Gauke was speaking at an Association of Investment Companies conference.
He also explained that the government recognised how important a role VCT investment played in the economy in boosting small business funding and creating more jobs.
“Some of these companies are superstars of the future,” he said. “We want to help start-up companies and make the sector attractive for investors, which is why we are in discussion with the EU to make changes.”
