Tax - changes to EIS/VCT investments

George Osborne’s budget in March saw proposals to make the Enterprise Investment Scheme significantly more attractive to investors and we thought a mid-year recap might remind you of the opportunity available to you.

The key changes, which are subject to approval under the European Commission State Aid rules, are to:

• raise the level of income tax relief for qualifying EIS investments made from 6 April 2011 to 30% (currently 20%).

• increase the maximum investment qualifying for income tax relief to £1 million from 6 April 2012 (currently £500,000).

• relax the rules which govern whether a trading company qualifies for EIS investment – the proposal is that for investments from 6 April 2012 the new limits for companies will be a maximum:
  - number of employees of 250 (currently 50),
  - gross assets of £15 million (currently £7 million), and
  - EIS investments of £10 million (currently £2 million).

As before, qualifying investments of up to £500,000 in 2011/12 may be ‘carried back’ for relief in 2010/11, but be aware that relief will only be obtained at 20% rather than the new rate of 30%.

You will still be able to claim EIS Capital Gains Tax deferral relief, therefore delaying payment of CGT at 18%/28%. This is not a relief from the tax, merely delaying the timing of the eventual payment.

As mentioned above, Commission approval is still required and so HMRC are issuing tax coding adjustments at 20% for EIS investments – adjustments will be issued for the additional 10% should approval be received.