Talking PointMar 2 2023

UK is 'punching above weight in VC investment'

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UK is 'punching above weight in VC investment'
(Rodnae Productions via pexels)
ByIma Jackson-Obot

Recommendations made in a new report aimed at improving awareness and understanding of the tax reliefs available to investors in VCTs, EIS and SEIS has been welcomed by the venture capital trust association (VCTA).

The briefing paper, developed by the All-Party Parliamentary Group (APPG) for Entrepreneurship in partnership with the VCTA, also highlights the role that venture capital trusts (VCTs) play in supporting early-stage UK companies, alongside the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

The paper which has also been written to compensate for the increased risk associated with investments in start-ups and early-stage businesses, includes a series of topline recommendations to the government in light of the uncertainty surrounding tax relief schemes, which include:

  • removal of the Sunset Clause for EIS and VCT so both schemes become evergreen, providing much needed clarity to early-stage businesses requiring future investment
  • reviewing and updating financial health rules to ensure that they are suitable to the nature of growth investment and worthy companies are not disqualified from funding.

Alongside EIS, VCTs are an option for more established, but still early-stage, high-growth businesses. 

If you invest in start-ups through a VCT fund, you can gain 30 per cent upfront income tax relief on the amount you invest, provided you keep your VCT shares for at least five years. Additionally, any capital gains or dividends which arise from the VCT are untaxed. VCTs must also be listed on a recognised UK stock exchange.

The report said that VCTs were targeted at retail investors and can broaden the pool of investors into high-growth companies. 

It added: “VCTs are able to provide evergreen patient capital, which means they can enable individual investors to realise their investment without the need for fund managers to sell the underlying assets, enabling the funds to remain invested in companies over the long term. 

“Because they are evergreen funds, the initial 30 per cent income tax relief not only leverages the additional 70 per cent of private capital, but this sum can grow and be re-invested multiple times by the fund into new eligible businesses across the UK.”

Despite having a smaller economy than countries like Japan and Germany, the UK is third, behind the US and China, for VC investment.

Will Fraser-Allen, Chair of the VCTA, added: “The UK has a thriving start-up and early-stage business ecosystem and comfortably punches above its weight in VC investment, ranking third in the world behind the US and Japan. 

“We are encouraged that the government has expressed its long-term support for VCTs, and will work in partnership to seek the further clarification needed to address any uncertainty which still persists.