VCTs Under Threat In Budget 2017

Business angels may find their choice of investments with tax breaks narrowing after Budget 2017.

Speculation that tax incentives offered by the Enterprise Investment scheme and Seed Enterprise Investment Scheme are under Treasury review were met with dismay by investors.

Now, more speculation out of Whitehall suggests venture capital trusts may also come under fire.

Mandarins at The Treasury are concerned that all three schemes are tax shelters for the wealthy rather than a channel for investing in businesses.

The feeling in Whitehall is few ordinary investors have enough cash above their pensions and ISA allowances to take advantage of VCT, EIS and SEIS, so voters would not miss the reliefs but the Treasury could gain some valuable revenue if the programs were scrapped.

Investors may lose tax breaks

Investors receive a valuable upfront income tax break of 30% on VCT and EIS and 50% on SEIS if they hold shares staked against companies in the schemes from three to five years.

Rather than see the schemes run to preserve capital and gain tax breaks, the Treasury wants to encourage investors to take more risks with their money.

Already, one VCT has withdrawn from the market.

Albion VCT raised money primarily for asset-backed businesses, such as schools, hospitals and restaurants, where land and property were an important factor in the business.

The fund says a top-up is suspended until the Treasury gives a clearer view about the type of investments a VCT can pursue after the Budget.

Wake-up call needed?

“Albion expects that any changes arising from this consultation are likely to be made in the Autumn Budget 2017,” said a spokesman.

The Treasury review argues most of the investment funds involve capital preservation and that 40% of companies could have raised their funding without the perk of tax breaks.

“There is no doubt some EIS money is used in ways that do not adhere to the spirit in which the scheme was created. Perhaps this has gone too far and a wake-up call is needed. The wording in the consultation seems to suggest that the government thinks so and may be considering taking action to “reprioritise” how the current tax reliefs are targeted,” said a spokesman for the trade body the Enterprise Investment Scheme Association (EISA).

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