HMRC was criticised by the Association of Investment Companies for the ambiguity of its draft wording, which suggested any VCT paying dividends to shareholders who joined after 6 April would lose its tax-efficient status.
As such, many VCTs delayed share issuance, in spite of receiving new investments.
Following the clarification, HMRC has made clear existing money will be unaffected; rather VCTs are only prevented from using new, uninvested money to pay dividends to investors, from 6 April and as such shares can now be issued without any risk to the tax breaks.
Swift reponse
Ian Sayers, director general of the AIC, said: “We are delighted the Government has acted so swiftly to address our concerns and provide greater certainty for the VCT industry and their shareholders.”
Charles Stanley Direct senior investment manager Ben Yearsley has warned that the changes make it virtually impossible to launch a new VCT.
“People want dividends and any new VCTs coming to market won’t be in profit, therefore won’t be in a position to pay out any dividends for at least three or four years.”
But Martin Churchill, editor at Tax Efficient Review, pointed out that there had not been any new VCTs for a number of years anyway, therefore this latest clarification from HMRC was just another factor to consider rather than introducing any new barrier.
Clarity
“I think it’s good news that [HMRC] has clarified the situation and cleared up what they should have done in the first place. This isn’t a major change though.."
HMRC has also clarified its position in relation to VCT mergers, where it will now be able to facilitate mergers and apply modifications to the new rules where relevant.
