Autumn Budget 2017: VCT: effect of anti-abuse provisions on commercial mergers

If an investor sells shares in a Venture Capital Trust (VCT) and within 6 months subscribes for shares in either the same VCT or another VCT where those VCT’s have merged, income tax relief is restricted.

There is currently no limit on the merger condition, which means that income tax relief may be withdrawn even where the merger takes place several years after the subscription, or where the merger takes place solely for commercial reasons and the investor was not aware at the time of the subscription that the merger would occur.

The government will legislate in Finance Bill 2017-18 to limit the application of the anti-abuse rule relating to mergers of VCTs. Income tax relief may no longer be withdrawn where the relevant VCTs merge more than two years after the subscription, or the merger takes place for commercial reasons where it is not one of the main purposes to obtain a tax advantage.

This change will have effect for VCT subscriptions made on or after 6 April 2014.

This will affect individuals who have invested in VCTs and VCT fund managers. The change means that the scheme is well targeted to incentivise new investment by individuals and does not unduly restrict the commercial activities of VCTs.