Tax specialists are revving up their best guesses ahead of this year's budget on the issue of the level of tax relief accorded venture capital trusts, even as a growing number are expected to close early because of high investor demand.
Chartered accountant MacIntyre Hudson, in its latest note on the issue, gives odds of “2-3 on” that there will be an extension of the review period regarding the current level of tax relief.
Victor Dauppe, tax principle, predicts the current 40% level of relief will be maintained for another two years as it “has yet to be fully tested, and the chancellor would have to be really desperate for extra pennies to consider abolishing or reducing it”.
In announcing he does not want to change the regime, Gordon Brown would indicate support for investment into startups and growing companies, Dauppe says.
Instead, if there is to be any change in the area of Treasury breaks accorded investors, it is likely to affect EIS and R&D tax credits, Dauppe adds: while investors get 20% income tax relief on investments up to £200,000 on new shares in unquoted companies, there is little support to the entrepreneur, while the R&D tax credits exclude the services sector.
Therefore, MacIntyre Hudson predicts Brown will bring in a “tax holiday” for a defined period, to help companies by “complementing the existing EIS and R&D tax credits”.
Extension of the 40% relief on VCT investments would likely bring an additional boost to a sector that is already having one of its better years.
According to the latest Allenbridge Tax Shelter Report, the total raised by the sector so far in fiscal 2005-6 stood at about £310m as of last Friday, up £32m on the week before.
The Baronsmead VCT 4 ‘C’shares offer closed early, something Allenbridge expects will be followed by early closures of the Close Technology & General, Close IHT AiM, Core 2 & 3, and Downing Protected IV & V funds.
|Generalist funds - best performers|
|Tax Year||Name||Annual Return|
|1995-6 & 1996-7||Close Brothers VCT||8.2%|
|1997-8 & 1998-9||Foresight Technology VCT||20%|
|1999-2000||Foresight Technology VCT ‘C’ shares||2.4%|
|2000-1||Close Technology and General VCT||6.9%|
|2001-2||ProVen Growth and Income VCT||7.6%|
|2002-3||Close Brothers Development VCT ‘C’ shares||4.1%|
Source: Allenbridge Tax Shelter Report
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