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Renewable VCTs and EIS thrown into doubt

The Government will ban enterprise investment schemes and venture capital trusts from benefiting from renewable energy subsidies.

Budget documents reveal the rules for the tax-efficient vehicles will be amended to exclude those benefiting from state subsidies for renewables, known as renewables obligation certificates. 

Many renewables VCTs and EIS companies make a substantial proportion of their income from these state subsidies for electricity production. Rocs are awarded as confirmation of the energy’s sustainability, which can then be sold on to larger energy companies which have to achieve certain quotas of Rocs. 

Plutus Wealth financial planner Robert Forbes estimates the move could affect about 30 per cent of the larger EIS and VCT offerings.

Forbes says this change is potentially “very, very significant” as although the rule change will not affect existing schemes, it will hit those yet to be created.

He says: “That is huge. The EIS and VCT world has always put a big focus on Rocs and making use of those effectively. It makes sense for the Chancellor to remove the lop-sidedness of the tax perk for little risk.

“It is all about quid pro quo: you get tax relief for taking risk, if there is no risk it seems a bit over the top.”

Bestinvest managing director Jason Hollands says HM Revenue & Customs has signalled it is looking to “crack down” on renewables VCTs that enjoy large subsidies. 

He says: “There are of course a handful of VCTs focused on these situations but it is also an area where broader based limited-life VCTs dip their toes.”

Separately, Chancellor George Osborne has also announced a crackdown on the “potential misuse” of VCTs and EIS, as he is concerned about investors taking advantage of state subsidies in “low-risk” investments. 

The full Budget report says: “The Government is concerned about the growing use of contrived structures to allow investment in low-risk activities that benefit from income guarantees via Government subsidies and will therefore explore a more general change to exclude investment into these activities, consulting with stakeholders.” 

An investigation and consultation will be carried over the summer.

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