At a headline level Venture Capital Trusts have been left unaffected by this Budget.
Investors will still receive upfront income tax relief of up to 30%, plus tax free dividends and capital gains tax (CGT) free growth.
However, in relative terms the scheme has become significantly more attractive.
With income tax thresholds frozen for years to come and CGT rising, the potential for tax free returns have become even more appealing.
Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) has not itself been changed in this budget, in fact the Chancellor singled it out for praise. However, EIS investors have not escaped unscathed.
As shares in unlisted businesses, EIS qualifying investments qualify for Business Relief (BR). In the past this meant any amount of EIS investments could be passed on inheritance tax (IHT) free. Going forward investors could face a 20% IHT bill of EIS investments if they already have £1 million of BR qualifying investments.
However, for individual investors, EIS has probably jumped up the list of investments worth considering. CGT free growth is more attractive now, and CGT deferral is more valuable in a higher tax world. Throw in 30% up front income tax relief and wealthy, sophisticated investors should certainly spend some time exploring the area. If the budget sparks significant inflows that would also be good news for British start-ups – potentially unlocking significant funding at lower cost.
Seed Enterprise Investment Scheme
Like EIS, the Seed Enterprise Investment Scheme also featured in the budget to be singled it out for praise. However, SEIS investors too face the potential for an IHT bill in future where there was none before.
On the plus side the potential for 50% upfront income tax relief remains attractive, but the increase in CGT rates means it’s the potential to reduce CGT bills by up to 50% which really stands out. An additional rate CGT payer claiming all relevant reliefs could be risking as little as 15.5p in the £1.
