UK - Chancellor reduces VCT tax relief

The BVCA welcomed the announcment with its Chief Executive Peter Linthwaite saying: 'We welcome the Chancellor’s decision to only reduce the tax relief on VCTs by 10% to 30%. It clearly shows he has listened to the BVCA about the important role VCTs play in bringing investment to the smaller, entrepreneurial sector of the market. VCTs play an important part in backing the culture of enterprise that the Chancellor emphasised in the Budget. The change in the VCT tax rules is not surprising, as the Government has long stated that the 40% relief was temporary.'

Robert Drummond, former BVCA chairman and current Chairman of Chrysalis VCT, is expecting that the Chancellor’s proposed budget changes to Venture Capital Trust rules and reliefs from April will prompt a last minute rush to invest in this tax year: 'With the 30% income tax relief rate the Chancellor has found a compromise between maintaining the current level (40%) and returning to 20%, but this change, together with the increase in the minimum holding period from three to five years appreciably alters the risk-reward profile of private equity investment by personal taxpayers and will encourage people to get as much as they can invested by 5 April.'

However, Stephen Edwards of Core Growth Capital was unimpressed: 'The Chancellor is just missing the point. VCTs will need less tax relief if they are free to deliver real investment performance – which means removing many of their investment and regulatory restrictions. He has actually increased the restrictions, increasing costs and making it harder for VCTs to perform. The 30% tax relief now left will just be eaten up in compliance costs and inefficiencies as a result of complying with the bigger rule book he has just introduced.'

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