The main measures are around the Government proposal to increase the investment limits for Enterprise Investment Schemes (EIS) and VCT investments in knowledge intensive companies. In addition, legislation will be changed to introduce a risk-to-capital condition in an attempt to disqualify 'capital preservation' fund-raising. There are also proposals to limit the anti-abuse rule for mergers of VCTs, define relevant investments for EIS and VCTs, and certain other reforms.
The Government has proposed various changes to the Venture Capital Scheme rules. The proposed changes are subject to the normal state aid rules and include:
- In response to the Patient Capital Review the Government will introduce legislation to encourage further investment in knowledge-intensive companies under EIS and from VCTs. The Government will double the limit an individual may invest under EIS in a tax year (from £1m to £2m), if amounts over the £1m are invested in knowledge-intensive companies. In addition, the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs will be increased to £10 million (compared to the current limit of £5 million). The changes will effect investments made on or after 6 April 2018.
- Similarly, the Government has announced that changes will be made to ensure that VCTs are focussed on companies where there is a real risk to the capital being invested. The changes will have effect for investments made on or after 6 April 2018.
- The Government has confirmed that the response to the consultation document regarding the streamlining of the advance assurance process will be published on 1 December 2017.
- In response to the Patient Capital Review, the Government will consult in 2018 on the introduction of a new knowledge intensive EIS fund structure, in which there would be flexibility to deploy capital raised over a longer period.
- The Government will legislate in Finance Bill 2017-18 to ensure all risk finance investments, whenever made, will count towards the lifetime funding limits for companies receiving investments under EIS and from VCTs. The changes will have effect for investments made on or after 1 December 2017.
- The Government will also legislate in Finance Bill 2017-18 to limit the application of an anti-abuse rule relating to mergers of certain VCTs. The change will have effect for VCT subscriptions made on or after 6 April 2014.
- In response to the Patient Capital Review, the government will legislate in Finance Bill 2017-18 to move VCTs towards higher risk investments.
"The changes to double the amount individuals can invest into knowledge intensive companies and the amounts such companies can raise is a welcome and positive step to encourage further investment under EIS and for VCTs."