Yesterday's Budget contained some interesting points for those keeping a watchful eye on developments in Social Investment Tax Relief.
While there has been no fundamental changes to that which has been announced already, the government has started to shape what can be expected in the near future.
First is a clear commitment to introduce Social Venture Capital Trusts (“VCTs”). Although this will not be done in the next Finance Bill, the government has confirmed that potential investors can look forward to the same tax reliefs currently afforded to those who invest in existing VCTs, namely, 30% income tax relief, no capital gains tax on sale and tax free dividends. They have also clarified that Social VCTs will be prevented from supporting the same list of “excluded activities” as currently applies to SITR investments.
Secondly, the proposed expansion of SITR for subsidised electricity generation will go ahead as announced. The only slight update is that qualifying community enterprises will continue to be eligible for Enterprise Investment Scheme and VCT investment for a transitional period of six months after State Aid approval has been given to the proposed expansion of SITR.
And finally, the regulatory framework for SITR funds will be amended so that they can be promoted on the same basis as EIS funds. HM Treasury suggests that this regulatory change will be in place by 13 April 2015.
BWB consultant Neil Pearson commented “This is a welcome boost to SITR. The creation of Social VCTs, and allowing SITR funds to be marketed in the same way as EIS funds, creates a level playing field with tax reliefs available for investments in the private sector. This will help existing social finance intermediaries raise funds, and also encourage more fund managers to move into social impact investment. This in turn should create more momentum in this space, increase investor awareness of the opportunities for social investment and make it easier for social enterprises to access much-needed investment.”
The government also announced, in yesterday’s Budget, their intention to introduce some potentially far-reaching changes to the rules for EIS and VCT investments, namely:
• all investments must be made with the intention to grow and develop a business
• all investors will have to be ‘independent’ from the company at the time of the first share issue
• relief will be limited to companies where the first commercial sale took place within the previous 12 years; this rule will apply except where the total investment represents more than 50% of turnover averaged over the preceding 5 years
• the total investment a company may receive under the Enterprise Investment Scheme and Venture Capital Trusts will be capped at £15 million, or £20 million for companies that meet certain
conditions demonstrating that they are ‘knowledge intensive’
• the employee limit for knowledge intensive companies will increase from 249 to 499 employees
All of these changes are subject to state-aid approval from the EU commission, and will take effect as soon as that approval is given.
The government will also, with effect from 6 April 2015, remove the requirement that 70% of Seed Enterprise Investment Scheme money must be spent before EIS or VCT funding can be raised.
Posted on 19/03/2015 in Legal UpdatesBack to Knowledge