The Association of Investment Companies has backed the Treasury’s decision to postpone new limits on venture capital trusts’ investment capabilities.
Last week, the Treasury postponed a measure included in the Finance Bill that would have subjected VCTs, enterprise investment schemes and seed enterprise investment schemes to a £2m annual limit on the amount they could invest in a small business from April 6.
VCTs offer 30 per cent tax relief on investments of up to £200,000 a year as well as tax-free dividends and capital gains.
The move was designed to comply with European regulations and would have seen these vehicles lose their tax relief if they exceeded the limit.
The AIC raised concerns with the Treasury after it published the new limit in the Finance Bill last month. The AIC argued that the VCT sector was not given enough time to adapt to the change.
AIC director general Ian Sayers says the Government’s decision to postpone the limit shows it is committed to supporting the VCT sector.
The Government is pushing the European Commission to review the limit, which Sayers hopes will see it rise to £5m.
He says: “Such an increase is dependent on the approval of the European Commission. These negotiations are, by their nature, complicated and time-consuming. Nevertheless, we are confident that the Government is committed to this process and we very much hope this increase can be achieved.”
Hargreaves Lansdown investment manager Ben Yearsley: “Hopefully, the level is raised to £5m to benefit smaller businesses.