Increased limits for knowledge intensive companies
During Budget 2017, it was announced that the government will legislate to encourage more investment in knowledge-intensive companies under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).
The Government will:
- double the limit on the amount an individual may invest under the EIS in a tax year to £2 million from the current limit of £1 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies
- raise the annual investment limit for knowledge-intensive companies receiving investments under the EIS and from VCTs to £10 million from the current limit of £5 million. The lifetime limit will remain the same at £20 million, and
- allow knowledge-intensive companies to use the date when their annual turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of the first commercial sale.
The changes will have effect from 6 April 2018. This measure is subject to normal state aid rules.
Venture Capital
The government will introduce measures to ensure venture capital schemes (the EIS, Seed Enterprise Investment Scheme and VCTs) are targeted at growth investments. The government has announced that relief under the schemes will be focussed on companies where there is a real risk to the capital being invested, and will exclude companies and arrangements intended to provide ‘capital preservation’. Detailed guidance will be issued shortly after the publication of the Finance Bill.
VCTs
The government will legislate to limit the application of an anti-abuse rule relating to mergers of VCTs. The rule restricts relief for investors who sell shares in a VCT and subscribe for new shares in another VCT within a six-month period, where those VCTs merge.
This rule will no longer apply if those VCTs merge more than two years after the subscription, or do so only for commercial reasons. The change will have effect for VCT subscriptions made on or after 6 April 2014. The government will also legislate to move VCTs towards higher risk investments by:
- removing certain ‘grandfathering’ provisions that enable VCTs to invest in companies under rules in place at the time funds were raised, with effect on and after 6 April 2018
- requiring 30% of funds raised in an accounting period to be invested in qualifying holdings within 12 months after the end of the accounting period, with effect on and after 6 April 2018 • increasing the proportion of VCT funds that must be held in qualifying holdings to 80%, with effect for accounting periods beginning on and after 6 April 2019
- increasing the time to reinvest the proceeds on disposal of qualifying holdings from six months to 12 months for disposals on or after 6 April 2019, and
- introducing a new anti-abuse rule to prevent loans being used to preserve and return equity capital to investors, with effect on and after Royal Assent.
