Changes announced in the Summer Budget to EIS, SEIS and VCT schemes

The Chancellor has announced changes to the venture capital schemes (SEIS, EIS and VCT) in today’s Budget 8th July. The announcements reflect further changes since the March Budget, and have followed a thorough examination of the evidence of the funding needs of smaller businesses in the UK and extensive discussions with the European Commission.

Venture capital schemes: changes to scheme rules

NB. The scheme allows for greater support for “knowledge intensive companies” – with limits that are significantly higher than the EU basic rules (under the General Block Exemption guidelines). This means that the schemes will have an increased focus on innovative companies, which can face higher barriers to finance, whilst continuing to provide support for those smaller businesses that also struggle to access finance.

The government will, subject to state aid approval, and with effect from Royal Assent to the Summer Finance Bill 2015:

  • require that all investments are made with the intention to grow and develop a business
  • require that all investors are ‘independent’ from the company at the time of the first share issue
  • introduce new qualifying criteria to limit relief to investment in companies that meet certain conditions demonstrating that they are ‘knowledge intensive’ companies within 10 years of their first commercial sale, and other qualifying companies within 7 years of their first commercial sale. This will not apply where the investment represents more than 50% of turnover averaged over the preceding 5 years
  • introduce a cap on the total investment a company may receive through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) of £20 million for knowledge intensive companies, and £12 million for other qualifying companies
  • increase the employee limit for knowledge intensive companies to 500 employees
  • introduce new rules to prevent EIS and VCT funds being used to acquire existing businesses, including extending the prohibition on management buyouts and share acquisitions to VCT non-qualifying holdings and VCT funds raised pre-2012, and preventing money raised through EIS and VCT from being used to make acquisitions of existing business regardless of whether it is through share purchase or asset purchase

The government will also remove the requirement that 70% of Seed Enterprise Investment Scheme (SEIS) money must be spent before EIS or VCT funding can be raised for qualifying investments madeon or after 6 April 2015 (Summer Finance Bill 2015)

Venture capital schemes: renewable energy –The government will continue to monitor the use of the SEIS, EIS and VCT for investments in community energy organisations benefiting from subsidies for the generation of renewable energy to ensure that support for community energy through the venture capital schemes provides good value for money for the taxpayer and is not subject to misuse.

Further relevant announcements made by the Chancellor in today’s Budget include:

  • A cut to the corporation tax rate to 19% in 2017 and 18% in 2020.
  • An increase to the permanent level of the Annual Investment Allowance from £25,000 to £200,000 for all qualifying investments made on or after 1 January 2016.
  • An increase to the Annual Employer NICs Employment Allowance from £2000 to £3000 in 2016-17
  • The abolition of the dividend tax credit and introduction of a new £5000 tax-free allowance for dividend income. New rates of tax on dividend income above the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. The changes will come into effect from April 2016.
  • The introduction of legislation preventing private equity and some hedge fund managers from exploiting tax loopholes to avoid paying the full rate of Capital Gains Tax on their performance returns (‘carried interest’).
  • An increase to the income tax personal allowance to £11,000 in 2016-17
  • 40% tax band threshold to rise to £43,000 from next year
  • Inheritance Tax changes: from 2017 there will be a new £175,000 allowance on homes left to children or grandchildren allowing £1 million to be passed on tax-free. This is in addition to the existing £325,000 threshold which will be fixed until the end of 2020-21. Both allowances can be transferred to your spouse or partner.

These changes will be legislated for in the upcoming Finance Bill and will take effect from Royal Assent. Until that point investors should continue to exercise caution in relation to the EU limits on the EIS/SEIS schemes as per HMRC guidance issued earlier this year.


By UKBAA 09 Jul 2015