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Budget 13: VCTs with enhanced buybacks may face crackdown

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The Government could crack down on venture capital trusts that offer enhanced buy-backs after Chancellor George Osborne warned about the practice in today’s Budget.

Enhanced buy-backs enable investors to double the 30 per cent tax relief offered on VCT investments and have seen an increase in popularity in recent years.

Today’s Budget document says: “Following a number of representations from investors, the Government is concerned that VCTs offering enhanced buy-backs are not operating within the spirit of the legislation.

“The Government will continue to monitor particular aspects of the venture capital schemes to ensure that they remain well-focused and supportive of businesses needs.”

Enhanced buy-backs allow VCT investors who have kept their shares in the vehicle for the five-year qualifying period can use the buy-back offer and then claim a new 30 per cent tax break for a further five years.

Hargreave Hale AIM VCT co-manager Oliver Bedford comments: “Whilst we are not operating an Enhanced Share Buy Back Scheme this year, we support the principal.

“After all, encouraging an investor in AIM VCTs to commit his money to the fund for another five years, we are guaranteeing access to funding to small companies for a further five years. That commitment to the scheme, which will span another economic cycle, fully warrants the income relief that comes with the investment.”

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