VCT and EIS

Question 1

Changes in VCT legislation in November 15 (4)

Answer 1

• VCTs can no longer use funds to acquire business (mbo’s)
• need to invest in younger companies (generally less than 7yo)
• need to invest in smaller companies
• different investment approach is required
• some companies have chosen to wind up instead

Question 2

Four advantage of keeping hold of shares in a VCT which is winding up rather than sell and invest in a new VCT

Answer 2

• discount to NAV will close if NAV is achieved
• expected timeframe I’d return if money less / do not need to tie money up for another 5 years
• may be less risky
• avoids selling costs of existing shares and buying costs of new VCT
• avoids time out of the market

Question 3

Four disadvantages of keeping hold of shares in a VCT which is winding up rather than sell and invest in a new VCT

Answer 3

• no further tax relief
• liquidity issues
• may not achieve the expected price
• share price could fall further

Question 4

Conditions a BCT must meet to be approved by HMRC (6)

Answer 4

• must be listed on stock exchange
• all money raised by BCT must be employed within two years
• income must be derived wholly or mainly from shares and securities
• must not return more than 15% of its income
• at least 70% of holdings must be in qualifying holdings
• not more than 15% of holdings invested in a single company
• a firm must have less than 250 employees at the date the shares are issued

Question 5

Explain the tax considerations of a VCT (8)

Answer 5

• tax relief of 30%
• on investment up to £200,000
• tax reduced
• investor must have sufficient income tax liability to warrant the relief
• relief is withdrawn if shares are not held for 5 years
• dividends are tax free
• gains on disposal are CGT exempt (no holding period)
• losses on VCT can not be uses against gains elsewhere
• forms part of estate on death for IHT purposes

Question 6

Subscription rules and tax treatment of an EIS (10)

Answer 6

• can invest up to £1mn
• or up to £2mn if excess over £1mn is in knowledge -intensive business
• 30% tax relief
• up to level of tax liability
• can carry back income tax relief to the previous tax year
• reinvestment relief
• available if proceeds of a business sale are invested within 3 years of sale
• exempt from CGT upon sale
• if held for 3 years
• exempt from IHT
• if held for 2 years