Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are both set to experience changes from April 2026, as was revealed in the Autumn Budget.
These schemes were viewed as outdated and the reforms aim to modernise their effectiveness.
This is part of the Government’s desire to be seen supporting entrepreneurship and scale-ups, while also recalibrating the balance of tax relief between different investment routes.
Who will be affected?
Following the Autumn Budget, a policy paper outlined the main measures of the proposed reforms.
This indicated that the measures will affect companies raising finance under EIS and VCTs, as well as individual investors using these schemes, fund managers and advisers involved in structuring and promoting qualifying investments.
It is hoped that several hundred businesses will stand to directly benefit from the changes, especially if they were staring down the existing funding or asset limits.
The news is less welcome for the 24,000 individual investors who are likely to be hit by the reduction in VCT Income Tax relief.
What are the key changes?
Upcoming legislation will seek to amend the Income Tax Act 2007 and bring about a host of reforms.
These include:
- The gross assets requirement for a company will increase to £30 million before the issue of shares, up from £15 million, whilst the limit for immediately after the issue of shares will increase to £35 million, up from £16 million.
- The annual investment limit will double to £10 million, up from £5 million, as will the limit for knowledge-intensive companies to £20 million, up from £10 million.
- The lifetime investment limit will also double to £24 million for companies, up from £12 million, as well as for knowledge-intensive companies to £40 million, up from £20 million
- The Income Tax relief that can be claimed by an individual investing in VCTs will be reduced to 20 per cent from the current rate of 30 per cent
Certain companies operating in Northern Ireland in specific sectors linked to electricity generation and supply will be unaffected by the changes and must follow the current limits.
