Budget VCT plans set to stymie three VCTs: Hollands

Reacting to George Osborne’s Budget announcement that the government intended to exclude investment in VCTs which benefited from “contrived” government income guarantees, Mr Hollands said the proposals could also affect wider investment strategies of broader-based VCTs.

The managing director of business development and communications for the London-based firm, said the news would be unwelcome for VCTs which focus on renewable energy, and where the investment case was underpinned by access to significant subsidy-based revenues.

Mr Hollands said VCTs using renewables obligation certificates or the renewable heat incentive, such as the Sustainable Technology Share pool on the Elderstreet VCT, the Ventus VCT, and the Foresight Solar VCT - which recently completed a top-up offer, could struggle under the new rules.

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He said: “It will also affect the investment strategies of other broader based, limited life VCTs which sometimes invest in these situations, with new rules likely resulting in them refocusing primarily on asset backed situations instead, where financing provided can be secured with a charge on a tangible asset such as a freehold property.

“Other items affecting VCTs had already been flagged ahead of the Budget. These include measures to bring an end to the practice of enhanced buybacks, where investors in a VCT are encouraged to sell their shares and reinvest in the same VCT, in order to achieve repeated tax relief, and the ability to subscribe for VCT shares via a nominee account.”

The Treasury’s 122-page budget document said it was concerned about the growing use of the structures to allow investment in “low-risk activities that benefitted from income guarantees through government subsidies”.

It added that the government would explore a change to rules which would exclude investment into these activities, and would consult with stakeholders over this during the summer.

Ian Sayers, director general, Association of Investment Companies, said: “The government continues to support the VCT sector and recognises its role as providers of finance to SMEs.

“We are confident they will successfully manage the impact of these changes, as they have done in the past, and will continue to meet the needs of investors.”