Chancellor George Osborne has fired a warning shot at venture capital trusts offering enhanced buy-backs, saying the practice goes against the spirit of the scheme.
Enhanced buy-backs allow investors who have kept their shares in a VCT for the five-year qualifying period to sell their shares to the fund, automatically reinvest in new shares in that year’s offer and claim a new 30 per cent tax break for a further five years.
The Budget 2013 report says: “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 they remain well-focused and supportive of businesses’ needs.”
Hargreave Hale Aim VCT co-manager Oliver Bedford says his firm supports the principles behind enhanced buy-backs despite not offering them.
He says: “The Government should not lose sight of the fact that, operated correctly, an enhanced share buy-back scheme does not offer investors anything that is not already available, it merely reduces the cost.”
The Association of Investment Companies figures show about £50m went through enhanced buy-backs in 2011/12, out of the £330m raised by the VCT industry. It says it will be in touch with the Treasury to seek clarification on its comments.