Fears tax relief on venture capital trusts and enterprise investment schemes could be severely restricted in the Budget have proved unfounded, as chancellor Philip Hammond instead doubled the amount of investment allowed in the schemes.
The maximum annual limit is currently £1m, but this will be doubled for investments in companies the chancellor feels are in sectors that are particularly innovative.
He said he is determined to prevent EIS investment allowances being used for investments in low risk companies.
Investing in EIS has been encouraged by successive governments to raise funds for a number of small, unlisted businesses, and this is reflected in the high rates of tax relief on offer.
Investors receive 30 per cent tax relief on those investments, and the sector attracts around £1.6bn a year.
Plus any gain is capital gains tax free if the shares are held for at least three years and the income tax relief was claimed on them.
According to the EIS Association, since 1994 investors have ploughed £15.9bn into EIS.
Today's comments come in the context of the Treasury’s own report, Financing Growth in Innovative Firms, which stated that the “majority” of EIS investments were made for capital preservation purposes, instead of encouraging the growth of companies.
“Increase in the EIS investment limits for knowledge intensive companies is welcome news," said Helena Kanczula, corporate tax director at accountancy firm Blick Rothenberg.
"As ever, the devil will be in the detail but properly targeted, this could encourage private investment in innovation."
Mr Hammond’s comments on ensuring EIS tax relief is not used to evade tax indicates that further anti-avoidance legislation may be introduced, added the firm's Genevieve Moore.
“Doubling the EIS limits for innovative companies will encourage even more private investment - the government now needs to simplify the EIS rules,” said Nimesh Shah, partner at Blick Rothenberg.
David.Thorpe@ft.com
