The government announced that existing venture capital schemes that offer tax relief to individuals to encourage them to invest in smaller and unlisted companies will be extended.
In his mini-budget on Friday, chancellor of the exchequer Kwasi Kwarteng said the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) will both be extended beyond 2025.
Since 2018, VCTs have invested £1.7bn into 532 different SMEs, which is seen as filling an important finance gap, between the banks and private equity investors that invest in larger businesses, and VC and angel investors that back smaller companies.
The announcement was welcomed by the investment trust sector, but the Association of Investment Companies, which represents investment trusts and VCTs, said clarification was needed on how the government will remove the existing uncertainty surrounding the scheme.
The AIC has been seeking the removal of the so-called ‘sunset clause’, which ends the upfront 30% income tax relief for VCT investors from 6 April 2025 (though this does not affect investors’ tax relief on VCT investments made before this date).
Richard Stone, chief executive of the AIC, said the extension to 2025 “is a strong vote of confidence in VCTs”.
He said: “VCTs provide scale-up finance for growing businesses and are fully aligned with the government’s drive for growth, creating jobs, funding innovation and boosting exports.”
Will Fraser-Allen, chair of the Venture Capital Trust Association (VCTA), said it was "hugely welcome news for the whole industry and brings much needed clarity to those entrepreneurs who rely on equity capital to fuel the growth of their early-stage businesses as well as the end investors whose capital is used to such great effect".
He added that the decision reflects the "positive dialogue the VCTA has had with the Treasury and other stakeholders in recent months, and recognises the crucial role the VCT and EIS schemes continue to play in supporting the UK’s funding ecosystem and growing our economy, at a time when it faces an uncertain future".
The Seed Enterprise Investment Scheme (SEIS) limits would also be increased from April 2023, he said.
The Treasury said the government is “helping businesses in the United Kingdom to grow” by increasing the generosity and availability of the SEIS and the company share option plan.
This is, it said, designed to improve the ability of British companies to raise money, attract talent and grow.
From the new 2023/24 tax year, under SEIS, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase.
To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years.
To support these increases, the annual investor limit will be doubled to £200,000.
These changes will help more than 2,000 companies a year that currently use the scheme, the Treasury said.
Under the share option plan, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit.
“The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies company share option plans, the limits will be made more generous,” the department said.