Spring Budget 2017 – Changes to venture capital schemes

Venture capital schemes include the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs), which provide income tax and capital gains tax reliefs for individual investors. The reliefs are subject to complex rules that apply to the investor and to the company invested in.

As announced at Autumn Statement 2016, the requirements of EIS, SEIS and VCTs will be amended as follows, to make these schemes more flexible:

  • the rules on EIS or SEIS will be changed for shares issued on or after 5 December 2016, so that a right to convert shares from one class into another will be specifically excluded from being treated as a pre-arranged exit, which would otherwise disqualify the shares from benefitting from EIS or SEIS relief;
  • for investments made on or after 6 April 2017, VCTs will be given additional flexibility to make follow-on investments in companies with certain group structures (this aligns VCTs with EIS provisions); and
  • with effect from the date on which Finance Bill 2017 receives Royal Assent, a new power will be introduced to enable VCT regulations to be made that will clarify the treatment of certain share for share exchanges.

A summary of responses to a consultation on options to streamline and prioritise the advance assurance service will be published shortly.

These provisions focus on specific aspects of the relief, and are unlikely to affect most venture capital scheme investments. Companies and investors need to be aware of the complexity of the rules generally, whenever such investments are being considered.