Income tax relief for investment in venture capital trusts is to be temporarily doubled under proposals laid out by Chancellor Gordon Brown this week.
The Treasury is raising relief from 20 per cent to 40 per cent for two years in a bid to encourage investment into the struggling VCT market, which has slumped from £250m to £50m in just three years.
But investors will not benefit directly as the additional 20 per cent will be paid not to them but to the VCTs, a move that will boost the amount of money they have to invest. Subject to discussion with the industry, the Treasury is also considering scrapping the capital gains tax relief for VCT investment and replacing it with incentives through income tax relief.
The Treasury has firm plans to increase the annual investment limit for VCTs from £100,000 to £200,000 from April 2004.
It is also raising from £150,000 to £200,000 the threshold for income tax benefits under the Enterprise Investment Scheme, which has fewer fund-raising difficulties than the VCT market.
A British Venture Capital Association spokesman says: “The point is we want to keep the VCT market healthy and to create new opportunities for people to invest in them. The Chancellor has made an important step forward in this respect.”