Chancellor Jeremy Hunt has extended Enterprise Investment Schemes and Venture Capital Trusts to 2035 as part of his Autumn Statement.
The extensions were granted with the intention to grow companies under the start-up, small, and medium-sized enterprise umbrellas.
The scheme was originally launched in 1994, providing tax breaks for those willing to invest either directly in an EIS company or in an EIS fund. Investors can claim up to 30% tax relief on income of these investments.
Richard Stone, chief executive of the Association of Investment Companies, said: “It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause to 2035. This addresses an urgent issue as the sunset clause would have automatically ended VCT tax relief in April 2025. The extension to 2035 will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.
“VCTs play a vital role in providing funding and support to small, ambitious UK businesses, a key driver of economic growth. The AIC will continue to work with the government as the legislation passes through parliament and we hope this measure will unlock further investment.”
Jason Hollands, managing director of investment platform Bestinvest, added: “The ‘sunset clause’ was required under EU state-aid directives and so one option could have been to make these schemes permanent as a demonstrable example of the greater flexibility the UK now has outside of the EU regulatory orbit.
“But an extension by a decade nevertheless provides both businesses and VCT and EIS fund managers with clarity that the schemes remain a valued part of the financial ecosystem.
“However, given the Government’s drive to encourage greater capital for UK fledgling companies, they have also missed an opportunity to go further and give a shot-in-the-arm to these schemes.
“The annual amount that can be subscribed to VCT share issues and benefit from income tax credits has been stuck at £200k since 2004/5 and is well overdue an increase after 20years.
A bolder move would have been to increase the income tax credits for investing in VCT new shares from 30% to 40% – a level they were at in 2005/6. It is noteworthy that when the VCT income tax credit was reduced from 40% to 30% the amount of VCT fund raising dropped from £779 million in 2005/6 to £267 million the following year.
Increasing it could have provided a very rapid boost to the financing of small, UK-growth companies, especially from high earners who still have very limited access to pension tax reliefs because of tapering. ”
Jack Rose, head of retail sales at Triple Point also welcomed the extension.
“The tax incentives embedded in VCT and EIS have proven to be magnets for investors, attracting over £1 billion in VCT investment for the second consecutive year, in the 2022/23 tax year,” Rose said.
“Simultaneously, EIS saw an impressive investment of over £2.5 billion by UK taxpayers during the same period. These figures underscore the vital role these pieces of legislation play in providing crucial resources to young companies and the investors who believe in their potential.
“Over nearly three decades, companies backed with VCT and EIS capital have not only created thousands of jobs across the UK but have also paved the way for several to become unicorn tech success stories. This success speaks to the effectiveness of the model the UK has established for early-stage companies, positioning us at the forefront of early-stage company investment in Europe.”
