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Chelsea FS calls on the Chancellor to increase tax relief on VCTs

Chelsea Financial Services has called on the Chancellor to increase the level of tax relief on Venture Capital Trusts in the upcoming Budget.

Head of investment products Matthew Woodbridge says that Alistair Darling has to make the move if he is serious about stimulating smaller businesses in the UK.

VCTs were initially launched in 1995 to attract investors to small, unquoted companies in the UK. However, the attraction of returns and tax benefits was offset in 2007, when the Government cut the tax relief for VCT investors from 40 to 30 per cent.

According to figures from Chelsea FS, only £130m was raised for VCTs in the 2008/09 tax year, a marked fall from the £1.25bn raised between 2004 and 2006.

Woodbridge says: “Our prospering start-ups, sole traders and small businesses can give the UK economy a badly needed shot in the arm. Unfortunately, in the face of the current economic headwinds, banks and other lending institutions are increasingly putting the freeze on loans to smaller businesses – and particularly those at an embryonic stage in their development.

“We feel that an increase in income tax relief from the current level
of 30 per cent would substantially increase the amount of money invested in
VCTs and hence increase the flow of money to small UK companies at a
time when banks are not lending to small or medium sized firms.
Stimulating this part of the economy is likely to increase the rate
of recovery.

“I would also like to see a reversal of the tightening of rules which
means VCTs cannot invest in companies with assets greater than £7m. We
call for the rule to be reversed to the previous legislation when VCTs
were able to invest in companies with up to £15m in assets.”

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