Budget 2017 – EIS and VCT update
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
Rather than worsening the rules as widely expected, the government has made EIS and VCT investment more attractive both for companies and investors.
The key message is the government wants to reward entrepreneurial companies and investors who are prepared to take some risk to support British businesses.
Budget announcements in more detail
1. Better access to growth capital for knowledge-intensive companies
Knowledge-intensive companies (university spinouts, life science and technology companies for instance) will have better access to growth capital. Not only will they be able to receive up to £10 million in EIS funding in one year (twice the previous limit), they may also qualify even if they’ve been around for longer than current rules allow. This could make follow-on investment in successful companies easier and potentially result in greater returns for investors.
2. Doubled EIS allowance for investors
For individual investors, the annual EIS allowance will double to £2 million when investing in knowledge-intensive companies.
3. Focus on entrepreneurial companies
There will be a new principles-based test to ensure companies that receive VCT, EIS and SEIS investment are proper entrepreneurial businesses. The government is keen to ensure returns aren’t coming mainly from tax relief. We believe the majority of the types of investments we promote, and our clients like to buy, will fall within the spirit of these tests.
4. Minor changes to VCTs
There have been some minor tweaks to the type of investment VCTs can make, but this should not cause a material change to the investment strategy of most VCTs.
Which EIS offers could benefit from the Budget?
The Budget could benefit any EIS investing in high-growth, knowledge-intensive sectors. Two typical examples are below:
Parkwalk focuses on UK university spin outs. It invests in technology or intellectual property developed in a university by a team or an individual professor which have high growth potential. Investors will hold five to eight portfolio companies.
SafeToNet is developing software and mobile apps that help protect children from harm online. This is a single-company EIS.
Please note: this article, like our service, is not advice nor a personal recommendation to invest. The information is based on our current understanding of the Budget announcements, details of which are subject to legislation. Tax rules change and tax benefits depend on individual circumstances.
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