“The devil is always in the detail and in respect of VCTs, proposals announced alongside the Budget aim to tackle VCTs adopting lower risk capital preservation strategies rather than ploughing cash into genuine, growth companies to help them expand.”
Mr Hollands goes on: “From Royal Assent of the Finance Act, VCTs will not be able to make secured loans to companies and any returns on loan capital above 10 per cent must represent no more than a commercial return on the amount invested.
“Alongside this, another significant measure will require VCTs to invest cash raised more quickly than under the current rules, with 30 per cent of any funds raised in an accounting period from 6 April 2018 needing to be invested in qualifying companies within 12-months after the end of the accounting period.”
The Patient Capital Review document sets out that with effect on or after 6 April 2019 the percentage of funds VCTs must hold in qualifying holdings will increase to 80 per cent from 70 per cent, while the period VCTs have to reinvest gains will double from six to 12 months.
Mr Hollands warns this could increase the risk profile of some VCTs.
Jack Rose, head of tax-efficient investment at LGBR Capital agrees these changes will "slightly migrate the risk profile of VCTs".
But he also concedes: "I don’t think any of these changes are particularly onerous. I think they’re fair and balanced."
It was all part of Mr Hammond's "action plan to unlock over £20bn of new investment in UK scale-up businesses", including through a new fund in the British Business Bank, seeded with £2.5bn of public money, which the chancellor announced in his speech.
Warm welcome
Those in the EIS and VCT industry largely welcomed Mr Hammond’s proposals.
Dr Ilian Iliev, chief executive of EcoMachines Ventures, notes: “Last year there was approximately £2bn invested in EIS funds. More than half of that was around various types of capital preservation/lower risk/asset-preservation schemes.
“So, there's potentially a very large pot of investible money that may be looking for a new home.”
David Mott, managing partner at Oxford Capital, hails the chancellor’s Budget as one for “ambitious entrepreneurs”.
“Focusing EIS tax reliefs on tech-focused investments will help to launch thousands of new UK businesses, creating high-value jobs and investing in the R&D that will make the UK a force in the global markets for the years to come,” he insists.
“Tech companies can now raise up to £10m a year from EIS and VCT investors, double the current rate. We are all excited about building bigger and stronger businesses.”
