© Crown copyright 2017
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: firstname.lastname@example.org.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/income-tax-venture-capital-schemes-relevant-investments/income-tax-venture-capital-schemes-relevant-investments
Who is likely to be affected
This measure will affect companies, social enterprises, fund managers and individuals using the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs) and Social Investment Tax Relief (SITR).
General description of the measure
This measure amends the definition of a ‘relevant investment’ to ensure all investments, including all risk finance investments made before 2012, are counted towards the lifetime funding limit for companies receiving investment under tax advantaged venture capital schemes. The limit is £12 million for most companies and £20 million for knowledge-intensive companies.
This measure is intended to ensure that all risk finance investments that a company may receive are treated as relevant investments regardless of when they were made.
The definition of a relevant investment will apply for all purposes in the EIS and VCT rules and will also extend to the new lifetime limit for the Social Investment Tax Relief scheme.
Background to the measure
The definition of a relevant investment was introduced in the Finance Act 2007 as part of a new annual limit on the amount of EIS and VCT investments a company may receive. The definition excluded certain EIS and VCT investments to ensure there was no retrospective effect when the annual limit first applied. Finance Act 2012 amended the definition of a relevant investment to include ‘other risk finance investments”; but excluded investments where the change would otherwise have retrospective effect.
Finance Act (2) 2015 introduced new EIS and VCT rules to better target the schemes to support high-growth companies with little or no track record that would otherwise struggle to access finance to grow and develop. The changes included the introduction of a new lifetime investment limit, which depends upon the definition of a relevant investment. However the changes did not take into account the effect of the transitional provisions included in the Finance Act 2007 and the Finance Act 2012. As a consequence, certain investments received before 2012 do not count towards the lifetime funding limit.
The changes will apply to qualifying investments made on or after 1 December 2017.
The current EIS legislation is contained in Part 5 of Income Tax Act (ITA) 2007.
The current VCT legislation is contained in Part 6 of ITA 2007.
The current of SITR legislation is contained in Part 5B Income Tax Act 2007.
Legislation will be introduced in Finance Bill 2017-18 to amend Parts 5 and 6 of ITA 2007 to define all EIS, VCT and other risk finance investments, regardless of when they were made, as ‘relevant investments’.
Summary of impacts
Exchequer impact (£m)
|2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021||2021 to 2022||2022 to 2023|
This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
We estimate that a maximum of 100 individual investors will be affected by this measure.
The measure is not expected to impact on family formation, stability or breakdown.
The changes to the schemes are not likely to change the impacts of this measure on any group. After careful consideration, we have concluded that there are no impacts on groups of people sharing protected characteristics differently to other groups, and has not identified any equalities impacts.
From the data available it is reasonable to conclude that these changes will not have any further impact on those groups affected by equality legislation.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses. Fewer than 5 companies have been affected by the provisions since November 2015. There will be an impact on:
- some companies may not be eligible to receive future investments under the schemes because the historic investments would result in the company breaching the lifetime limit on relevant investments
- some companies may become eligible for follow-on funding under the EIS and VCT schemes provided they can show that the follow on funding was anticipated at the time of the initial investment
There may be an impact on a small number of civil society organisations that are social enterprises and that received EIS or VCT investments before mid-2007. However most social enterprises using the EIS scheme were carrying out activities that are now excluded; others may still be able to use the EIS scheme.
Negligible one-off costs include familiarisation with the new rules. Negligible on-going costs may include making arrangements to obtain follow-on funding.
Operational impact (£m) (HMRC or other)
The costs to HMRC of implementing these changes are anticipated to be negligible.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through the amount of funds raised by EIS and VCTs.