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AS 2011: Axing £1m VCT ceiling could transform the sector, says AIC

Association of Investment Companies director general Ian Sayers says Chancellor George Osborne’s decision to scrap the £1m investing limit for venture capital trusts will provide a boost to the sector.

In his autumn statement this week, Osborne announced changes to VCTs and the enterprise investment scheme. He axed the rule that prevents VCTs from investing more than £1m in a firm in a 12-month period. Further details on VCT changes are expected in next week’s draft Finance Bill.

Sayers says dropping the £1m limit cuts a huge amount of red tape. He says without the limit, small companies looking for a £5m investment could access the money from one VCT rather than five.

Sayers says: “This change will significantly enhance the capacity of VCTs to support entrepreneurial businesses and could transform the sector.”

Albion Ventures managing partner Patrick Reeve says the move could see consolidation in the VCT sector as it would remove the need to launch multiple VCTs to invest in the same companies.

He says: “The average size of a VCT is £21.8m, which could rise to £50m following the removal of this restriction, leading to increased economies of scale and greater diversification.”

On EIS, Osborne said he will relax the connected-person rules and the definition of shares that qualify for income tax relief, although no further details were given.

EIS funds will be barred from investing in feed-in tariff businesses and will face a test to ensure they were not set up solely for the purpose of accessing tax relief.

In the 2011 Budget, the Government set out investment and tax relief benefits for VCT and EIS, including increasing the qualifying limit from 50 to 250 employees and gross assets from £7m to £15m.

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