The sunset clause which was set to end the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme on 5 April 2025 has been extended for a further ten years.
The schemes, which offer tax relief for individuals investing in qualifying small and medium-sized companies including start-ups, will now expire on 5.4.35. Both schemes offer an upfront income tax reduction of up to 30% of the amount invested. Gains from selling EIS or VCT shares are exempt from CGT.
You can invest up to £1m in EIS companies each year. If the shares are in knowledge-intensive companies that focus on R&D this rises to £2m. Individuals must invest in new shares in qualifying companies and comply with the rules for a minimum holding period of three years. Other restrictions apply, including where the investor has a prior connection with the investee company.
CGT payable on the disposal of other assets can be deferred if the proceeds are rolled over into an investment that qualifies for the EIS and the investment is made between one year before and three years after disposal. Where an investment is unsuccessful and the EIS shares are sold at a loss, that loss can be set against income tax.
A VCT is a listed company set up to invest in early-stage trading companies. Individuals can invest up to £200,000 each year in new VCT shares and must comply with the rules for a minimum holding period of five years. Rollover relief for CGT on other assets and parallel loss relief are not available to VCT shares. However dividends received from VCT investments are not taxed. EIS dividends are taxable.
If you are seeking to make an investment that you believe will qualify for the EIS or VCT scheme you should discuss your options and the potential tax implications with an independent financial advisor.
