Following announcements in 2011, the Government confirmed various changes to the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules and proposed Seed EIS (SEIS) rules in the March 2012 Budget. These changes are a welcome relaxation and should go some way to stimulating and boosting investment into 'smaller' companies.
Changes to EIS and VCT rules – for shares issued on or after 6 April 2012
The following changes are subject to State Aid approval:
- employee limit for investee companies increased to fewer than 250 full-time employees
- size threshold for the gross assets test for investee companies increased to no more than £15m immediately before investment, and £16m immediately thereafter
- maximum annual amount that can be invested in a company through the EIS and from VCTs in aggregate in any 12-month period increased to £5m.
The amount that an individual can invest per tax year in EIS shares has been increased to £1m from 6 April 2012.
Other changes include:
- clarification that investors are disqualified from claiming EIS income tax relief if, together with associates, their shareholding or voting power exceeds 30%
- replicating the definition of eligible shares for EIS purposes to that used for VCTs with respect to certain preferential rights in relation to dividends
- shares issued in connection with 'disqualifying arrangements' will not attract EIS or VCT relief
- tax relief will also not be available under EIS or from VCTs where funds raised by a share issue are to be used to acquire shares in another company
- removing the £1m per annum limit on investment by a VCT in a single company (except for companies in a partnership or a joint venture)
- removing the £500 minimum investment limit for EIS investments.
Seed EIS
After consultation on the initial SEIS proposals, the following changes have been incorporated to this relief (available for investments made on or after 6 April 2012) for certain investors investing in a company or a group with gross assets not exceeding £200,000 prior to SEIS investment:
- companies can qualify even if they have subsidiaries
- eligibility is determined by reference to the age of the trade, rather than the company
- the reference to holdings of other entities in calculating asset and employee tests has been removed
- past (but not current) employees qualify for relief
- directors who qualify under SEIS continue to qualify under EIS (provided the EIS shares are issued before the third anniversary of the date of issue of SEIS shares).
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