Announced in the Budget, the Government has set out the detail of changes to the investment rules for Enterprise Investment Schemes (EIS) and venture capital trusts (VCTs).

The changes to the rules revolve mainly around opening up more companies for investment from EIS and VCTs, and increasing how much can be invested.

Particularly, the size of companies that the schemes can invest in has been increased from £7 million to £15 million, increasing to £20m for knowledge-intensive companies.  The employee limit is to be increased from 50 to 250 and from 249 to 499 for knowledge-intensive companies. The limit on the amount an individual can invest in an EIS has also increased from £500,000 to £1 million, while the amount an EIS or VCT can invest in an individual company has increased to £5 million.

The new rules also smooth the interactions between tax advantaged schemes by removing the requirement that 70 per cent of the funds raised by companies under Seed EIS schemes must have been spent before they can raise EIS or VCT funding.

However, the Government has also finalised plans to subject VCTs and EIS to further scrutiny in relation to the investments that they make. The government will introduce a ‘disqualifying purpose test’, designed to exclude VCTs or EIS that do not invest in qualifying companies and are set up solely for the purpose of giving investors tax relief.

VCTs and EIS will also no longer be able to invest in a company that is more than 12 years old, except where the investment will lead to a substantial change in the company's activity, or where the total investment represents more than 50 per cent of turnover averaged over the preceding five years. This exception means that if a company older than 12 years old comes up with a transformative idea or innovation then it is possible it could still receive funding.

The legislation will not be retrospective so it will not affect existing investments in VCTs and EIS. It will be implemented from the date of EU Commission approval and, for that reason, was not contained in the Finance Bill 2015. Therefore, the legislation will not come into force until later in the year, possibly in a second 2015 Finance Bill to be introduced after May's General Election - assuming the Commission has given its approval by then.