What effect Brexit is likely to have on VCTs

This article is part of
Guide to VCT investing

The EU State Aid Rules basically gave approval to the changes made in 2015, which included age limits on companies that qualify for VCT money, and the ban on VCTs being able to buy a business (effectively through a management buy-out) and instead put money to work with more knowledge-intensive companies.

Currently, as Stuart Veale, managing partner of Beringea, explains, UK legislation on the types of investments that VCTs can make has to conform to EU directives.

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He says: "This may change at some point following Brexit, allowing the UK government to change the rules and address some of the serious anomalies in the existing legislation, particularly those relating to the age limits on the companies which can receive VCT investment."

George Bull, senior tax partner for RSM UK, also thinks Brexit "could provide an opportunity for the government to renegotiate some of the EU State Aid rule changes".

Chris Hutchinson, manager of the Unicorn AIM VCT, makes the point that the private sector of the UK economy is mostly made up of small companies, with approximately 16.1m people working in small to medium-sized businesses, and any softening of rules might end up helping, not hindering, their growth.

"Clearly", he says, "the continued support of small businesses is crucial to the UK's economic future post-Brexit.

"It will be interesting to see whether Brexit has any impact on the VCT sector. Much will depend on a successful conclusion to negotiations surrounding an EU-UK trade deal.

"If these go well, it is possible the government may choose to provide greater support to earlier-stage companies that typically find it difficult to secure the capital required to scale up their operations."

While he acknowledges this could be "a long way off", this might be good for small companies and for the VCT sector, he believes.

Mood music

While Jason Hollands, managing director of business development and communications for Tilney, concedes a shift away from the EU State Aid rules could happen, leading to more flexibility for VCTs to invest in small companies, it is not a scenario he believes will play out any time soon.

According to Mr Hollands: "It is possible that, over time, there could be opportunities for greater divergence with EU State Aid rules, but we do not think that will happen in the foreseeable future." 

And Annabel Brodie-Smith, director of communications for the Association of Investment Companies, says it's "too soon to tell what the implications of Brexit will be".

She adds: "It's reassuring to know that, at nearly 22 years old, the VCT industry has the benefit of highly experienced managers who continue to deliver good returns for shareholders."