Mini-Budget: VCT tax relief to be extended

Mini-Budget: VCT tax relief to be extended

As part of his mini-Budget, the chancellor has extended the tax reliefs for venture capital trusts.

Kwasi Kwarteng said the government is supporting companies to raise money and attract talent, and remains supportive of enterprise investment schemes (EIS) and VCTs.

“The government remains supportive of EIS and VCTs and sees the value of extending them in the future,” the chancellor’s accompanying statement said.

The Treasury also announced that it will increase the generosity and availability of the seed enterprise investment scheme.

From April next year, the amount companies can raise through SEIS will rise from £150,000 to £250,000, and the annual investor limit will be doubled to £200,000.

The gross asset limit will rise to £350,000, and the age limit extended from two to three years.

Chief executive of the Association of Investment Companies, Richard Stone, said the move is a strong vote of confidence in VCTs and the AIC applauds the government’s intention to continue the scheme beyond 2025.

“VCTs provide scale-up finance for growing businesses and are fully aligned with the government’s drive for growth, creating jobs, funding innovation and boosting exports. We look forward to clarification of how the government will remove the existing uncertainty surrounding the scheme.”

Senior partner at Edition Capital, Harry Heartfield EIS and VCTs have been enormously successful in supporting equity investment into British small businesses - helping them achieve their ambitions and fuelling the economy. 

"EIS and VCT enables businesses to secure equity investment and grow rapidly, with the tax reliefs helping reduce investors risk.

"We are delighted that this government has extended these schemes. It will allow businesses to continue to benefit from access to over £2bn of annual funding which could have disappeared overnight.”

Pressure has been building on the government to signal to the sector what it intends to do with the sunset clause that will stop the tax relief currently available to investors in VCTs and enterprise investment schemes.

Research from Wealth Club in July showed that some £990mn in start-up funding could be put at risk if VCTs are shuttered.

VCTs invest in higher risk unquoted companies and come with a 30 per cent tax relief if the investments are held for five years, with any dividends earned also tax free.

But a sunset clause created as part of European Union state aid rules means VCT relief is only available to subscribers in the VCT for shares issued before April 6, 2025.

The government has the power to extend or remove the sunset clause through secondary legislation, which would allow the VCT scheme to operate in its current form beyond the current expiry date of the scheme.

An inquiry into the value for money these tax breaks provide began earlier this year, but the most recent evidence session was postponed due to the leadership contest.