Autumn Budget 2017—Incentivised investment

Autumn Budget 2017—Incentivised investment

This analysis is part of the Lexis®PSL Tax team’s summary of the Autumn Budget 2017.  Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.

Venture capital schemes—risk to capital condition

Following the consultation Financing growth in innovative firms (to which a response document has been published today), the government has announced its intention to include a new condition for relief in the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) regimes to ensure that the relief is better targeted at growth investments and to exclude ‘capital preservation arrangements’.

Taking a different approach to the past (where it has excluded particular types of low-risk investment such as energy generation), this measure takes a ‘principled approach’ requiring all relevant factors to be taken into account in determining whether, on a ‘reasonable view’:

  • the investee company has objectives to grow and develop
  • there is a significant risk of a loss of capital, where the amount of the loss could be greater than the net return to the investor (which includes the tax relief and income and capital growth)

A non-exhaustive list of factors to be taken into account will be provided in the legislation. The response to consultation suggests it will include:

  • the nature of a company’s ownership structure, such as being controlled by fund managers as nominees for investors—with the government identifying arrangements where companies are set up by advisers as a particular target, however the examples given do not indicate why investments into companies affiliated with fund managers are necessarily considered to be less risky, and
  • whether income from an asset forms a substantial part of the trade

while making it plain that the presence of any given factor does not necessarily cause a failure of the condition. The document also indicates that the use of special purpose vehicles or outsourcing of staff where they are common in the industry

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