Chancellor George Osborne has announced a clampdown on venture capital trusts (VCTs) and enterprise investment schemes (EIS') purely set up to access tax reliefs.
In today's Budget, Osborne said the government will roll out a new disqualifying purpose test to exclude companies set up for the purpose of accessing relief.
Osborne said the purpose of VCTs and EIS is to target genuine risk capital investments, as opposed to taking advantage of the generous tax breaks on offer.
The consultation will come as a blow to some feed-in-tariff VCT and EIS providers.
He said: "For both EIS and VCTs the government will also introduce a new disqualifying purpose test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares by a qualifying company in another company, and exclude investment in some Feed-in Tariff businesses."
On the plus side, Osborne reiterated from this April the investment universe for venture capital trusts will be widened.
The £1m investment limit per company rule has been lifted, allowing VCTs the option to invest an unrestricted amount into a small business.
Meanwhile, the Chancellor annouced plans to double the EIS tax relief allowance to £300,000.
Susan McDonald, chairman of EIS and VCT fund manager Calculus Capital, welcomed the consultation.
"The purpose of these schemes is to encourage investors to take a stake in the future success of the UK economy by backing promising small companies," said McDonald.
"VCTs and EIS funds established purely to access tax relief or feed-in tariffs are clearly abusing the system and we are pleased to see that is being addressed."
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