The consequences of this for investors is that they may not receive the EIS tax breaks as intended. Under HMRC rules, the investor only becomes eligible for the tax break once the capital has been deployed into a qualifying company, not the EIS itself. If it takes more than a year to invest the cash, the tax break may be triggered in a different year than was intended by the underlying investor.
Mr Clark says the way investors can avoid this is by placing the capital into the EIS early.
Mr Hoskins echoes this, agreeing that changes to the rules governing the types of investments that these portfolios can seek out is causing delays.
Ultimately, as the sector adjusts to the new reality, it is the product providers themselves who may put a cap on fundraising amounts this year.
Paul Latham, managing director at Octopus Investments, says he expects fundraising for VCTs to be lower this year as a result of the rule changes, forecasting something of a year of transition as companies seek to adapt. He agrees there are capacity issues on some fronts, and with VCTs not wanting to have capital they cannot invest quickly, they are likely to seek to raise less.
The elephant in the room is what happens if the government gives the go-ahead to allowing pension funds to dedicate a small part of their assets to the likes of VCTs, a proposal likely to be included in a forthcoming FCA discussion paper on patient capital. From a demand perspective, interest in this kind of venture capital isn’t likely to ebb any time soon.
David Thorpe is investment reporter at FTAdviser.com
