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A new era for VCTs and EISs as rules change

There has been a major overhaul for venture capital trusts (VCTs) and enterprise investment schemes (EISs).
The changes come as a response to a government consultation paper published last summer on “patient capital”. The paper criticised some EIS and VCT providers, saying, “Industry estimates suggest that the majority of EIS funds … had a capital preservation objective in tax year 2015/16, and around a quarter of VCTs have investment objectives characteristic of lower risk capital preservation”.
Two key points emerged from the new rules:
‘Risk to capital’ condition
VCT and EIS investments must now be made in companies that have objectives to grow and develop, and where there is a significant risk of loss of capital, after allowing for tax relief. This is to prevent an emphasis on capital preservation that was criticised in the consultation paper.
Tax reliefs
There were no changes to the levels of tax reliefs given to VCTs and EISs. The main rate of income tax relief for subscriptions remains at 30%. The relief can be clawed back if the investment is sold prematurely or ceases to qualify, with clawback periods remaining at five years for VCTs and three years for EISs. Similarly, the capital gains tax advantages of VCTs and EISs were left intact.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.
The Financial Conduct Authority does not regulate tax advice.

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
12th July, 2018
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