The Budget 2016 – Distilled for the Angel Investment Ecosystem

The Budget has provided a number of positive steps in the evolution of a cohesive and active early stage investment market.

Entrepreneurs’ Relief

UKBAA is notably delighted to see that our longstanding lobby to the Government to offer Entrepreneur’s relief to Investors has finally paid off. The role of angel investors in bringing expertise and longterm support to the growth of their investee businesses has now been acknowledged . Business angels and other investors will no longer have to hold a minimum of 5 per cent of a business to qualify for Entrepreneurs’ relief; nor will they have to be an employee or director of the company.

This will attract more individuals to bring their business experience alongside their cash to back more small businesses and we hope that this will especially encourage more individuals with industry experience to take on the role of Lead Angel, often on behalf of a syndicate.

Under the new rules, Entrepreneurs’ Relief of 10 per cent will be available on gains from newly issued shares from unlisted companies (including those on the Alternative Investment Market) on or after March 17 2016 and held for a minimum of three years from April 6 this year. The total amount of lifetime gains eligible for entrepreneurs’ relief remains capped at £10m.

UKBAA has created a summary of key points from the budget below for the early stage investment community:

EIS and VCT Schemes

• The Government will make technical clarifications to the Enterprise Investment Scheme and Venture Capital Trusts to ensure that the legislation introduced by the Finance (No.2) Act 2015 works as intended.
• As announced at Spending Review and Autumn Statement 2015, the Government will exclude all remaining energy generation activities from the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and Venture Capital Trusts with effect from 6 April 2016, as well as from Social Investment Tax Relief when enlarged.

Capital Gains Tax (including Entrepreneurs’ Relief)

A cut in the higher rate of Capital Gains Tax from 28 per cent to 20 percent and the basic rate from 18 per cent to 10 per cent from April 2016. There will be an 8 percentage point surcharge on these new rates for carried interest.

Capital Gains Tax entrepreneurs’ relief

• An extension of entrepreneur’s relief for long term investors in unlisted companies. This will provide a 10 per cent rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains. (This also removes the 5 per cent equity stake rule)
• The Government will allow ER to be claimed on a disposal of a privately-held asset when the accompanying disposal of business assets is to a family member. These changes will take effect for disposals made on or after 18 March 2015.
• The Government will allow ER to be claimed, subject to certain conditions, on gains on the goodwill of a business when that business is transferred to a company controlled by five or fewer persons or by its directors. These changes will take effect for disposals made on or after 3 December 2014.
• The Government will allow ER to be claimed in some cases involving joint ventures and partnerships where the disposal of business assets does not meet the existing 5% minimum holding conditions. These changes will take effect for disposals made on or after 18 March 2015.

SME Funding

• The Government is supporting SME access to finance, setting out a £1 billion package to support SMEs through the British Business Bank. It will support the first loans under its Help to Grow programme from spring 2016, supporting at least £200 million of lending.
• The Enterprise Finance Guarantee programme, which supports firms that lack a sufficient track record or collateral to access the finance that they need, will be extended until at least 2018.
• Bizfitech, Funding Options and Funding Xchange will be designated as finance platforms to help match borrowers and alternative lenders. And on 1 April 2016 the Government will designate the banks and Credit Reference Agencies (CRAs) that are within scope of the SME credit data regulations. This will ensure CRAs will receive SME credit information from high street banks and provide equal access to this information to all finance providers.

Innovation

• Allocation of at least £50 million for innovation in energy storage, demand-side response and other smart technologies over the next five years to help new technologies and business models access the market. Ofgem will consult later this year on the future of the £100 million Network Innovation Competition to maximise the delivery of genuinely innovative projects and technologies.
• The Government will lay the foundations for a smart power revolution, with support for innovation in storage and other smart technologies, and an increased level of ambition on interconnection, which the NIC estimates could unlock benefits to UK consumers of up to £8 billion per year.

Regional Devolution & Funding

Funding

• Greater Lincolnshire will receive control of a £450 million investment fund over 30 years to boost economic growth.
• East Anglia will receive new powers over transport, planning, skills, a £900 million investment fund over 30 years to grow the local economy, and access to £175 million ring-fenced funding to deliver new homes.
• The West of England will also receive control of a £900 million investment fund over 30 years to boost economic growth.
• The Government has agreed with LEPs in the Midlands and the British Business Bank to create a Midlands Engine Investment Fund of over £250 million to invest in smaller businesses in the Midlands, subject to final funding arrangements.
• Support for local businesses to build on the area’s strengths in space science and research, including a new Enterprise Zone will be created across Loughborough and Leicester, subject to business case approval. The Government also has announced the creation of an Enterprise Zone at Brierley Hill in Dudley, subject to business case approval.
• £16 million in R&D funding, matched by industry, to support aerospace firms in the East Midlands. This includes £7 million to help Rolls-Royce develop new high-temperature alloys in Derby. The Midlands will also receive over £15 million funding to support R&D into lowering vehicle emissions.
• The Government will invest £14 million in STEAMhouse, subject to business case. This is a creative innovation centre in Digbeth, Birmingham, bringing together arts and culture with science, technology, engineering and maths to drive innovation.