Trusts to keep tax rebates outlawed by EU

A POPULAR type of fund whose tax advantages were due to expire in two and a half years has received a reprieve.

Tax breaks on venture capital trusts (VCTS) will remain in place past April 2025 after Kwasi Kwarteng overrode a pre-brexit rule.

VCTS, which are funds whose shares are listed on the stock market, offer a tax rebate of 30 per cent of the amount invested. The dividends they pay and any capital gains made are tax-free. The tax breaks are offered as an incentive for savers to back risky start-up companies, in which VCTS are required to invest.

The tax breaks had been due to expire because they counted as state aid under European Union rules. But the Government will now act to override this “sunset clause”. The same changes will also apply to the Enterprise Investment Scheme (EIS), which uses an unlisted structure to back new businesses.

In documents released alongside the Chancellor’s “mini-budget” statement, the Treasury said: “The Government remains supportive of the Enterprise Investment Scheme and venture capital trusts and sees the value of extending them in the future.”

Had the existing rules remained in force, no VCT shares issued after April 5 2025 would have qualified for the tax breaks. VCT management companies tend to issue new shares every year, normally in the run-up to the end of the tax year. Only those who subscribe directly for new shares receive the 30pc income tax relief – those who buy their shares on the stock market do not – but all shareholders qualify for the tax-free dividends and capital gains.

VCTS are popular with wealthier savers who can afford to take more risk and who have often already used up their Isa and pension annual allowances.

Victoria Edwards, who co-manages the Seneca Growth Capital VCT, said: “We are pleased to see the Government extend its commitment to the taxadvantaged investment sector, recognising the excellent work of EIS and VCT providers who back start-ups and entrepreneurs in their quest to keep Britain at the forefront of global innovation and trade.

“The EIS and VCT schemes truly differentiate the UK economy and attract talent and opportunity to our markets.

“The news will buoy those just beginning their start-up journey with the potential of funding still on the horizon, and investors will continue to enjoy the considerable tax benefits that fuel the system.”

‘The news will buoy those just beginning their start-up journey with the potential of funding still on the horizon’