Venture Capital Trusts  

No slowdown in VCT or EIS market despite rule changes

No slowdown in VCT or EIS market despite rule changes

Changes to venture capital trust (VCT) and enterprise investment scheme (EIS) rules has not led to a reduction in demand for those vehicles.

Restrictions on the types of assets that EIS and VCT funds can invest in are due to take effect very soon, when the relevant legislation has worked its way through parliament.

The legislation, announced in the Autumn Budget on 22 November, will restrict those companies from investing in "asset backed businesses" due to the view of the Treasury that those investments are not sufficiently high risk to justify the tax breaks investors receive. 

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But Mark Brownridge, director general of the EIS Association, said many funds reached full capacity before 22 November in anticipation of the new rules.

Money raised from investors prior to the legislation taking effect can be invested under the old rules.

He said anticipation of the rule changes created a "buy now while stocks last" market for funds that will soon fall foul of the regulations.

Mr Brownridge said funds targeting growth (and thus aligning themselves with the rule changes and government wishes) are raising more than in previous years.

He pointed to MMC raising £18.2m last year and £24m this year or Draper Esprit mustering £16.6m last year and £21.8m this year.

Mr Brownridge said: "EIS are reporting large inflows of money as investors and IFAs start to understand the new landscape and that the ongoing focus for EIS will be on growth."

Jason Hollands, managing director for business development and communications at Tilney, said the VCT market has seen a similar raft of money coming in much earlier in the year than is typically the case.

Traditionally, the bulk of the cash raised by VCT and EIS funds comes in towards the end of the tax year, as investors seek to capitalise on the tax breaks.

But Mr Hollands said the amount of cash raised by VCT funds this year could be the highest for a decade, with much of the cash coming earlier in the tax year as investors sought to have their investments made ahead of any rule changes.

david.thorpe@ft.com