Budget 2010: Treasury introduces VCT changes

The Government is to introduce the final changes to VCTs which were agreed with the European Union.

In order for VCT investment not to count as state aid, the previous Government had to agree changes to the industry including where shares can be listed.

Today's Emergency Budget sets out the four changes which will be included in a Finance Bill to be introduced as soon as possible after Parliament's summer recess.

The four changes are:

VCTs only

• VCTs will be able to list their shares in any EU/EEA country. At the moment they can only be listed in the UK.
• VCT will have to own at least 70% of their investments in companies in eligible shares, up from the current 30%. However, the definition of eligible shares will change to allow VCTs to include shares which may carry certain preferential rights to dividends.

VCTs and EIS

• Companies which are considered an "enterprise in difficulty" are excluding from being a qualifying investment.
• Qualifying investments must only have a permanent establishment in the UK, rather than the current requirement that all or most of its business is carried out in the UK.

Patrick Reeve, managing partner of VCT manager Albion Ventures says: "The announcement about VCTs is pre-existing news, but it is good the changes were featured in the Budget as it means he has not got anything nasty up his sleeve for the sector."

"I think the reduction in corporation tax and the extension of entrepreneurs' relief is extremely welcome."

Guy Myles, managing director of Octopus Investments says: "This budget shows the UK Government is very keen to encourage growth through business expansion.

"It is a positive the Chancellor has reduced corporation tax and has not damaged any of the incentives for smaller companies.

"The fact there is no tax increases for businesses in an austerity budget, has to be seen as the Government showing its support."

Julian Hickman, a partner at Longbow Capital says: "We are disappointed by the bland statement regarding EIS and VCT in the Budget, which amounts to little more than procedural clarification over EU harmonisation proposals already announced earlier this year.

"They have published an impact assessment of the changes but these play no real favours for the industry - the rules were already in the pipeline.

"Of more impact would have been to broaden the type of businesses that can benefit venture investments and simplify the over complex tax rules."