Government increases investment allowance and incentives for knowledge-based start-ups but narrows relief for low-risk investments.
The Government has made a number of announcements relating to tax advantaged venture capital incentives, particularly impacting Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).
Most of the changes announced form part of the Government’s action plan in response to the outcome of the Patient Capital Review. The review formed part of the Government’s industrial strategy to increase productivity and drive growth by breaking down obstacles to getting long-term investment into innovative firms.
Subject to State Aid approval, the Government will:
A knowledge-intensive company needs to meet additional conditions relating to the research, development or innovation it carries out. The above changes (apart from 4) will apply to new qualifying investments made on or after 6 April 2018.
In response to the evidence gathered from the ‘Financing Growth in Innovative Firms’ consultation, the Government will also introduce a new condition to all tax advantaged venture capital incentives to exclude investments perceived to provide ‘capital preservation’. The condition will have two parts:
This condition will come into force from 6 April 2018 on all new qualifying investments.
A number of changes have also been announced regarding VCTs. Specifically, the Government will:
The Government has also made a number of other announcements of interest:
Overall, the above changes will be welcomed especially the doubling of the amount knowledge-intensive companies can raise and increasing investment limits for individuals. The Chancellor has set the direction of travel for tax incentive schemes by taking a clear step towards ensuring the schemes are not used as a shelter for low-risk investments, particularly, the new condition to reduce investments perceived to provide ‘capital preservation’.
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