The two-year window of opportunity offered by incentives outlined in today's Budget mean VCT providers are more likely to opt for top-up plans than try to launch new vehicles, says Jason Hollands, ISIS Asset Management director communications and strategy.
ISIS itself has chosen top-ups to existing trusts as the preferred route in recent times, while the industry as a whole has gone through a conundrum sparked by the three-year equities bear market.
"The industry needs to build scale," Hollands says, "it needs bigger trusts."
Overall, the chancellor's proposals to extend income tax relief to 40% from 20% in fiscal 2004/5 and 2005/6, and the double investment limits to £200,000 in those same years represents a mixed bag, Hollands adds.
The proposals backtrack from expected promises of a 20% injection directly into the trusts, rather than bringing the focus back on the taxpayer.
This means non-taxpayers will not benefit from the new rules as they would have under the original proposals.
However, on the plus-side, the VCT industry can relatively simply raise new money under the new rules, which will come into effect almost immediately, i.e. 6 April, rather than possibly having to wait another full year.
The new rules will probably widen the base of investors, Hollands adds.
The Inland Revenue says in its supplementary notes to the Budget that the investment limit for income tax relief on EIS schemes will rise to £200,000 from £150,000.
Another key change affecting EISs will enable individuals to offer loans to companies without damaging their ability to obtain EIS income tax relief on shares issued by said EIS in the subsequent 12-month period.
The Revenue says this is to ensure companies with, say, specific short-term cashflow problems are able to survive rather than go under while being otherwise "healthy".
"This is provided that the repayment of any loan before the date of issue of the shares is not made in connection with any arrangements for their acquisition," the Revenue states.IFAonline
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