Three reasons why government shouldn’t tinker with VCT and EIS tax relief

by | Oct 30, 2017

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VCT and EIS tax relief

 

Alex Davies, CEO and founder of Wealth Club, the dedicated investment platform for high net worth individuals says: “It would be disappointing to see further tweaks to EIS and VCTs, especially as it’s been just two years since the last raft of changes. Adding yet more restrictions could make them less attractive to investors and limit the vital role they play in society and in helping UK businesses access finance.”

Davies has identified three reasons why the government shouldn’t change the tax relief or the rules on EIS and VCTs:

 
 
  1. Creating Jobs – VCTs and EIS create lots of jobs. Recent research from HMRC found VCT-backed businesses averaged an increase of 60 employees per company (Source AIC);
  2. Contribution to the UK economy – whilst it is great to put money into companies which could be the next Facebook, don’t forget the “normal economy”. Down to earth activities such as building and running pubs, wedding venues, which all create lots of jobs and have a multiplier effect on the economy. Another good example is the film industry; every £1 in tax relief given to the British Film industry results in £12 in benefit to the British economy. That figure comes from the British Government itself;
  3. Turning investors off VCTs and EIS – if new restrictions were introduced to only allow investment in very risky assets, investors may well be put off altogether. Most investors we meet who invest in EIS and VCTs want a balanced portfolio. For example, they are more than happy to invest in some high-octane investments where the return may not be for many years, but they want to balance that out with investments such as asset rich and media EIS which should be less volatile and also more tangible, although far from being risk free.

He added: “One final but essential point, I’m convinced there is a very concrete risk of throwing the baby out with the bathwater. The mere fact a company owns assets doesn’t mean it’s not a proper business.

“I recently visited West Berkshire Brewery, a company we are helping raise money. Yes, it owns significant assets in the form of a bottling plant with some very expensive brewing equipment. But this is only a small part of the story. West Berkshire Brewery is a proper business. It has just set up a state of the art craft brewery and visitor centre – the likes of which you won’t find anywhere else in the UK. The business has required a huge amount of vision from its staff and management team, it is far from risk free. Moreover, it is providing much needed jobs in a rural area. Without EIS relief, would investors be so keen to part with their money?”

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