View more on these topics

Martin Churchill: Tighten VCT tax relief without stifling the market

Martin-Churchill-MM-Peach-360.jpg

Two pieces of news have hit the venture capital trust arena in the last few weeks – the Treasury and HMRC have issued a technical consultation covering share buy-backs and the first VCT fund raising of the current tax year has been launched with Northern Venture Managers seeking £50m across their three VCTs.

As mentioned in the 2013 Budget, the Government has become concerned about the use of certain share buy-back and re-investment arrangements between VCTs and their investors. It has decided that action is necessary to limit what it sees as the potentially damaging effect of these arrangements and to ensure that upfront tax relief is given only for genuine new investment in VCTs.

The technical consultation document sets out the background and rationale for this policy change, before describing in some detail proposals for reform and seeking views.

General company law allows companies such as VCTs to repurchase their own shares. The Government recognises that VCTs may repurchase shares for a variety of commercial reasons – for example, to allow investors to exit their investment – so it does not intend to prevent VCTs from repurchasing their own shares generally.  

Having considered a range of options, the Government believes that an effective approach would be to impose a restriction either :

  • where an investor subscribes for shares in a VCT within a certain period of a sale of shares held in that VCT or another VCT managed by the same fund management group; or  
  • where a VCT’s re-purchase of shares is subject to any understanding that the investor will re-invest in the same VCT or another from the same fund management group.

There are potential unintended consequences of major rule changes, both on investors and the second-hand market for VCT shares. The second-hand market is vital to the continued success of the VCT market.

But the Government is under the belief that “these practices are increasingly leading to investor expectations that they will always be able to sell their shares after a period of five years and to “refresh” their tax relief at that point by immediately re-investing in the same VCT”.

We do not recognise that view and it must be pointed out that annual buybacks – where the board has put in place a buyback policy – rarely exceed 10 per cent of shares in issue in that VCT. The take-up of enhanced buybacks in the last tax year has averaged mid-teen percentages of shares eligible – hardly a rush to take advantage of extra tax relief.

We have always seen HMRC as very supportive of the VCT area and we welcomed the 2011 new “disqualifying arrangements” test as giving HMRC the ability to address particular issues through a general test rather than specific rules.

If action must be taken, we urge the Treasury and HMRC to implement a simple rule restricting tax relief on new shares issued as part of arrangements involving share buybacks when the repurchase of shares is connected with investors re-investing in the same VCT within a short space of time.

Martin Churchill is editor of Tax Efficient Review

Recommended

6

Billy Burrows leaves Better Retirement Group as London office shuts

Better Retirement Group has closed its London office, with director Billy Burrows leaving the firm to join non-advised annuity specialist Annuity Line. Better Retirement Group will now operate from a single office in York. Four people were made redundant as a result of the office closure. Burrows, whose firm William Burrows Annuities was incorporated with […]

John-Greenwood-MM-blog-side.jpg
7

John Greenwood: The case for execution-only drawdown

Execution-only income drawdown for the mass market sounds like a recipe for disaster. But done right, it could hold the key to better retirement outcomes for millions of Britons.  Of course income drawdown is a risky ride that can leave retirees running out of money or seeing their income cut substantially. But the Retail Distribution […]

8

Tom Baigrie: Life companies appear apathetic over market decline

Well I didn’t expect that. Most of the big protection providers have issued their sales numbers for the first half of 2013, showing some serious falls. While this could be due to many factors, the underlying truth is that for a decade or more, provider CEO’s and heads of distribution have been telling me that […]

New stats raise fresh concerns over FCA’s early warning powers

New figures showing the financial regulator dropped one in four investigations after the point at which early notices could have been made public have raised fresh concerns about the FCA’s new powers. From April the FCA has had the power to publish early warning notices before the more formal decision notice stage and before firms […]

Help, I’ve been appointed as a trustee. What are my responsibilities?

Graeme Robb, Technical Manager at Prudential looks at the key duties and responsibilities of a trustee.  This article will consider the following: Duties to be performed on appointment Investment duties Protecting the interests of beneficiaries Keeping accounts and records Distributing property to beneficiaries Duties to be performed on appointment Obtain a copy of the trust […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment