The objective of this consultation is to look at the capital gap that knowledge-intensive companies face, and to consider an extension to the venture capital schemes to encourage “patient capital”.
Patient capital is defined in the consultation as “long-term investment in innovative firms led by ambitious entrepreneurs who want to build large-scale businesses”. The need for this type of capital has been recognised in recent changes to the EIS and VCT schemes, but the aim here is to look at a new type of fund based on the EIS framework.
Several alternative approaches are outlined in the consultation. The options that are proposed are as follows:
- A “patient” dividend tax exemption which would apply after an initial holding period of about five to seven years.
- A write off of capital gains reinvested in a fund, similar to the exemption afforded to SEIS investment.
- An extended carry back of income tax or CGT deferral, allowing a carry back greater than the one year carry back allowed for EIS relief.
- Up-front tax relief allowing for income tax and CGT deferral relief for investment in the fund on the basis that the capital is invested within a specified time frame. Investments would need to be held for a minimum period of three years.
These proposals are at an early stage, but seek to encourage investment in innovative companies that are not expected to produce a return in the short term.