Summarised below are the changes announced in the Chancellor's autumn statement that relate to EIS, VCT and the introduction of the new seed enterprise investment scheme.
Seed enterprise investment scheme ("SEIS")
This scheme is designed to encourage investment in new start-up companies and will provide income tax relief of 50 per cent to individuals who invest (up to a maximum of £100,000) in shares in "qualifying companies". In addition any gains realised on disposal of an asset in the tax year 2012/2013 and reinvested in a SEIS in the same year shall be exempt from capital gains tax.
The details of the SEIS have not yet been announced, other than there being a cumulative investment limit for companies of £150,000.
The Chancellor announced the intention to "simplify" EIS by relaxing the connected person rules and the definition of shares that qualify for relief.
In addition to the above (and as announced in the 2011 Budget) the £1 million investment limit per company for VCTs will be removed. This change is designed to reduce the administrative burden of the scheme.
EIS and VCT changes
The following legislative changes will be made:
- a new test will be introduced which is designed to exclude companies that are set up for the purpose of accessing either relief;
- companies whose trade consists wholly or substantially in the receipt of feed-in-tariffs will be ineligible for either relief (this change was originally announced in the 2011 Budget); and
- the acquisition of shares in another company will be excluded.
The purported aim of the above changes is to tighten the focus of the schemes.
The announcement regarding excluding FIT based companies is not new and it continues to appear that this change will not affect ROC based companies (although we are currently awaiting the draft legislation which should, hopefully, bring certainty on this point).
The intention to simplify the EIS and VCT legislation is welcome. The introduction of the SEIS is also good news, however given the announced size restrictions on investments it remains to be seen whether this could be of benefit to large scale operations (in particular wind farms which will continue to be a qualifying EIS / VCT investment notwithstanding the April 2012 changes).
However the announcement to exclude the acquisition of shares in another company is likely to require potential EIS / VCT investors in ROC based companies to acquire the underlying assets, rather than shares in a special purpose vehicle or SPV. Transferring assets to a SPV may not be the most tax efficient solution and sellers should also consider how such assets can be offered for sale to attract EIS / VCT investors.