FTAdviser can reveal details of the new rule set to come into force limiting a venture capital trust’s ability to return share capital that does not represent profits made on investments, after reaffirming it in the Budget.
Last week’s Budget confirmed HM Treasury planned to crackdown on abuse of VCTs.
The rule has now been published and revealed it will focus on profits made within three years of the end of the accounting period in which funds are raised.
HM Treasury stated VCTs will then need to comply with existing rules for investment into small and medium enterprises, in accordance with the “qualifying holdings” rules.
According to industry insiders, this approach was discussed at the VCT workshops held by HM Treasury in January and most participants believed it would be a “sensible” policy change that would maintain the integrity of the VCT regime without creating damaging impacts.
This new rule will apply only in respect of new shares issued on or after 6 April 2014, and will not limit VCTs paying dividends from realised profits at any time.
Given the difficulties in placing charges directly on a VCT, and in keeping with existing legislation, HM Treasury confirmed any VCT which breaches this condition will have its approved status withdrawn.
In order to ensure the restriction operates as needed, HM Treasury stated the change will not be restricted to reserves created from share premium accounts, but will apply in respect of any payment representing a return of share capital.
That will include the situation where share capital is used to pay up the issue of new bonus shares to shareholders.
The restriction will not apply where funds are used to redeem or repurchase shares already in issue, nor will it apply in respect of assets distributed in the course of a VCT winding up.
