Autumn Budget 2017: Encouraging more high growth investments through Venture Capital Trusts (VCTs)

VCTs are investment companies listed on the London Stock Exchange and invest in small or early phase businesses that meet certain criteria.

The government will legislate in Finance Bill 2017-18 to ensure that VCTs are targeted at growth investments. The intention is to give relief where there is a real risk to the capital being invested and will exclude companies and arrangements intended to provide ‘capital preservation’.

From the date of Royal Assent, VCTs may no longer offer secured loans to investee businesses. Also, any returns on loan capital above 10% must represent no more than a commercial return on the principal.

With effect from 6 April 2018, certain ‘grandfathering’ provisions will not apply to new investments made by VCTs. They will also be required to invest 30% of funds raised in an accounting period on or after 6 April 2018 in qualifying holdings within 12 months after the end of the accounting period.

Furthermore, from 6 April 2019, the period for reinvestment of gains on disposal of qualifying holdings investments will increase from 6 months to 12 months. In addition to this, the proportion of VCT funds that must be held in qualifying holdings will increase from 70% to 80%.

This measure affects VCTs, fund managers, companies seeking investments from VCTs and individuals who invest in VCT’s.