Summary and implications

In his Budget the Chancellor of the Exchequer has announced a number of changes which will affect SEIS, EIS and VCT schemes.

The headline points are that:

  • the SEIS is going to be made permanent;
  • EIS and VCT scheme rules are going to be changed; and
  • further consultations are expected on EIS and VCTs.

SEIS will be permanent

When the SEIS was first introduced, the scheme was only intended to be temporary and was going to stop applying to shares issued after 6 April 2017. However, the Chancellor has now announced that legislation will be introduced in Finance Bill 2014 to make the SEIS permanent. The current capital gains tax 50 per cent relief for re-investing gains in SEIS shares will also be made permanent.

This will provide more certainty for any early-stage companies raising equity, and for any individuals wishing to invest in such companies.

The SEIS will be permanent once the Finance Bill 2014 is given Royal Assent and the permanent CGT re-investment relief will have effect in relation to re-invested gains accruing to individuals in 2014-15 and subsequent years.

EIS and VCTs – Changes to scheme rules

The Chancellor has announced that the Government will introduce legislation into the Finance Bill 2014 to:

  • prevent companies from benefiting from investment via EIS, SEIS or VCT schemes if they also benefit from DECC Renewable Obligations Certificates or Renewable Heat Incentive subsidies (with effect from Royal Assent to the Finance Bill 2014);
  • allow investors to subscribe for VCT shares via nominees (with effect from Royal Assent), as first announced in the Autumn Statement 2013;
  • amend the VCT legislation to ensure that, notwithstanding the general time limits for making assessments to recover tax, HMRC can withdraw tax relief in all cases if VCT shares are disposed of within five years of acquisition (with effect from 6 April 2014);
  • restrict individuals' entitlement to VCT income tax relief where investments are conditionally linked in any way to a VCT share buy-back, or have been made within six months of a disposal of shares in the same VCT (with effect from 6 April 2014); and
  • prevent VCTs from returning capital that does not relate to profits on investments within three years of the end of the accounting period in which shares were issued to investors (with effect from 6 April 2014).

Further consultation on EIS and VCTs

The Government is planning to consult on excluding investment in low-risk activities that benefit from income guarantees via government subsidies from the scheme.

The Chancellor has also announced the Government's intention to launch a wider consultation over summer 2014 on the need to accommodate investments made by way of convertible loans in EIS and SEIS.  

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