The government has revealed plans to reform the structure of enterprise investment scheme funds from 2020.
The aim of the reforms is to target the scheme on "knowledge-intensive" investments after a consultation earlier this year.
From April 2020 the government will reform the HM Revenue & Customs approved fund structure, which will mean at least 80 per cent of funds raised must be invested in knowledge-intensive companies.
The time period over which approved funds must make their investments will be extended from one year to two and funds will be required to invest at least 50 per cent of each raise within the first 12 months, and to keep monies not yet invested in cash.
A carry-back rule will be introduced so that investors will be able to set their relief against income tax liabilities in the year before the fund closes and approved funds will be required to submit annual statements to HMRC to demonstrate that they continue to meet the relevant conditions.
On top of these changes, the Treasury will also simplify the administrative procedures surrounding EIS investments, regardless of participation in an approved fund.
The Treasury said: "The objective of providing these additional flexibilities for EIS funds through the new approved structure is to ensure additional patient capital reaches knowledge-intensive companies. The government also encourages new fund managers and angel groups to enter and develop expertise in knowledge-intensive sectors.
"The government will continue to monitor the market and will take action against behaviour not in the spirit of the venture capital schemes where necessary. As with all tax policy, the new approved fund structure will be kept under review."