Autumn Statement change opens door to VCTs on platforms

A change to the way venture capital trust shares can be accessed by retail investors announced in the Autumn Statement yesterday (5 December) could open the door for the vehicles to be widely held and invested via investment platforms.

In supporting documentation publishing alongside chancellor George Osborne’s speech, the government confirmed that it will seek to legislate in next year’s Finance Bill to allow investors to “subscribe for VCT shares via nominees”.

Ian Sayers, director general of the Association of Investment Companies, the trade body for listed investment funds, heralded the move, saying the change would mean “applications for new VCT shares can be made through platforms which are increasingly popular for both advisers and investors”.

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He said: “VCTs are key investors in smaller companies so we are very encouraged by the government’s support for these businesses. The package of changes on business rates announced today will provide a welcome boost to businesses creating jobs and seeking growth.

“The government is also making sure that the VCT scheme evolves in line with developments in the wider retail market and therefore has announced that VCTs can now be held via nominee accounts. This will mean that applications for new VCT shares can be made through platforms which are increasingly popular for both advisers and investors.”

Mr Sayers did, however, sound a note of caution regarding another change to VCT tax relief rules which is designed to end so-called ‘enhanced buy-backs’ offered by venture capital trust managers.

Enhanced buy-backs allow investors who have their VCT shares for more than the five-year qualifying period to sell their shares back to the manager and immediately repurchase shares for another five years, thereby becoming entitled to another round of 30 percent income tax relief.

At the Budget in March the Treasury announced it would be looking into enhanced buy-backs, stating it has concerns that managers offering the mechanisms are not operating within the spirit of the legislation.

The government has confirmed that investments which are conditionally linked in any way to a buy-back, or that have been made within six months of a disposal of shares in the same VCT, will not qualify for new tax relief.

Mr Sayers said: “The coalition Government has previously supported VCTs by introducing measures to widen the scope of their eligible investments. The changes to VCT dividends and buy-backs consolidate the scheme by ensuring VCTs continue to meet the government’s public policy objectives.

“We will continue to work with the Government to make sure the changes work as intended and ensure the long-term sustainability of VCTs.”