VCT – high-risk, high-reward?

Cliona Kirby, Tax Partner, CMS

In addition to the changes to EIS, SEIS and VCT set out in our blog, further changes were announced in today’s Budget that will only apply to VCTs.

The Government has acknowledged in its response to the “Financing growth in innovative firms” consultation that VCTs have begun to move away from investing in established companies and towards investing in riskier, early-stage companies in greater need of support. This appears to have been in response to the implementation of the “growth and development” requirement for venture capital schemes in 2015. To continue this trend, the Government has announced the following targeted changes to VCTs:

From the date of Royal Assent of the Finance Bill 2017-18, VCTs may no longer offer secured loans to investee companies, and any returns on unsecured loans above 10% must represent no more than a commercial rate of return on principal.

From 6 April 2018:

  • certain historic rules that provide more favourable conditions for some VCTs will be removed; and
  • VCTs will be required to invest at least 30% of funds into qualifying holdings within 12 months after the end of the accounting period in which they were raised.

From 6 April 2019 :

  • the time VCTs have to reinvest gains from investments will double from 6 months to 12; and
  • the proportion of VCT funds that must be held in qualifying holds will increase from 70% to 80%.

The above are a response to concerns that certain conditions currently placed on VCTs restrict their activities unnecessarily. However, combined with the other changes to venture capital schemes set out in the Budget, these changes look set to reduce low-risk investment and incentivise investment in genuine high-growth companies.

Leave a Reply

Your email address will not be published. Required fields are marked *