Budget 2011: Big boost for EISs and VCTs
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Source: Troika
Venture capital trusts and enterprise investment schemes look set for a surge in investor interest after new investment and tax relief rules set out in the Budget.
EIS, in particular, will receive more favourable treatment with Chancellor George Osborne increasing the level of income tax relief from 20 per cent to 30 per cent from April.
From April 2012, the Government will double the annual EIS investment limit for individuals to £1m. It will also increase the qualifying company limits from 50 to 250 employees and gross assets from £7m to £15m for both VCTs and EIS. The Government will also raise the annual investment limit for qualifying companies by 400 per cent to £10m for both vehicles.
Oxford Capital Partners investment director David Mott expects that EIS investment volumes will increase by 300 per cent. Since 1994, EIS have raised £7bn, averaging around £388m a year.
MAC Consulting chief exec utive Mark Chilton agrees that EIS will see a surge in sales due to the increase in tax relief but warns they are usually a riskier investment vehicle than VCTs.
He says: “Quite how this increased incentive for risk sits with the FSA’s concern over IFAs’ risk-profiling of clients is an interesting conundrum.”
Total money in VCTs has fallen sharply in the past few years. According to the Association of Investment Companies, total VCT money in 2006 stood at £508m. In 2010, that amounthad fallen to £318m and was as low as £150m in 2009.
AIC director general Ian Sayers says: “These new rules will be warmly welcomed by the VCT sector and those SMEs which rely on its support.”
Hargreaves Lansdown investment manager Ben Yearsley says: “It will secure the long-term future of growth-orientated VCTs and EIS, which is the important thing.”
The VCT industry feared a heavy crackdown following remarks from Osborne last month questioning the investment vehicle. Feed-in tariff businesses, such as solar companies, have been put on the excluded activities list for VCTs and EIS from April 2012. Experts also suggest the Government’s desire to ensure VCTs are “targeted at genuine risk capital investments” could end limited-life VCTs.
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