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HMRC internal manual

Venture Capital Schemes Manual

Introduction to the Venture Capital Schemes: Overview and background: history of the venture capital schemes

The first initiative to encourage investment in small private trading companies was a facility to relieve capital losses on unquoted shares of such companies against income tax. This was introduced in 1980. It remained substantially unchanged until 1998, when it was aligned with the provisions of the EIS. It is referred to in this manual as ‘share loss relief’ or ‘SLR’.

In 1981 the Business Start-Up Scheme (or Relief for Investment in New Corporate Trades) was introduced. It was superseded in 1983 by the Business Expansion Scheme (‘BES’), which provided relief for investment in both new and existing trading companies. In 1986 BES was extended to give exemption from capital gains tax (‘CGT’) in cases where BES relief had been given.

BES came to an end at the end of 1993, replaced by EIS in 1994. This represented a revision and fine tuning of BES, and added CGT deferral relief, to the existing reliefs of income tax relief on share subscriptions and CGT exemption on disposal of shares. In 1998, deferral relief became available whether or not income tax relief had been obtained on the new shares. In this way it effectively replaced a set of CGT provisions known as Reinvestment Relief (for which see CG62200+), which was then abolished.

In 1995 the Venture Capital Trusts (VCT) scheme was introduced. This provides a range of reliefs for an individual investing in a VCT, which is an approved company investing its funds mainly in small unquoted trading companies.

In 2000 the Corporate Venturing Scheme (CVS) was introduced for a ten year period as part of an initiative to promote corporate venturing activity. The reliefs similar to those provided under the EIS were made available to investing companies. The CVS expired after the ten year period on 31 March 2010 it has not been renewed.

In 2012 the Seed Enterprise Investment Scheme (‘SEIS’) was introduced to incentivise investment in small, early stage companies.

In 2014 the Social Investment Tax Relief (SITR) was introduced to encourage individuals to invest in social enterprises. The SITR was enlarged in 2017 and changes to the scheme apply to qualifying investments made on or after 6 April 2017.

In 2015, a number of changes were made to the EIS and VCT rules, to align with State aid rules. New age and lifetime investment limits were introduced, with higher limits for knowledge-intensive companies. A growth and development condition was introduced. 

In 2018 a new principles based test, the risk-to-capital condition was introduced to the EIS, SEIS and VCT scheme requiring those companies seeking investment to have objectives to grow and develop over the long term and that the investment must carry a significant risk of loss of capital.

Throughout the time changes were made to the schemes, including changes in rates of income tax relief and restrictions on the qualifying activities under the schemes, to better target the schemes on higher risk trading activities.