Changes to EIS and VCT in 2011 Budget

British Business Angels Association
23 March 2011

We are delighted that the lobbying that BBAA has made to Government of late on the need to encourage more angel investing has now paid off. BBAA fully supports the extension of EIS tax relief to investors from 20% to 30% from 6 April 2011, removal of many of the previous restrictions as well as the significant extension to Entrepreneurs Relief. We are now hopeful that the bid for a proposed new £100m Angel Co-investment fund presented by Capital for Enterprise Ltd late last year will receive support from The Regional Growth Fund, which is scheduled to be announced next month. The potential launch of the new Fund coupled with the increased fiscal incentives for angel investors would make a real and disruptive impact on the current level of UK angel investing to support growth and innovation in early stage businesses in the UK.

Changes to the EIS and VCT tax relief 2011 Budget:

The Chancellor announced in his budget that the government will reform the Enterprise Investment Scheme(EIS) and Venture Capital Trusts(VCT).

http://www.hmrc.gov.uk/budget2011/eis-vct-reforms.pdf

  • The rate of EIS income tax relief will rise to 30% from 20% from April 2011
  • Under the new changes, investors will be able to invest in businesses with gross assets of up to £15m, instead of the current level of £7m.  Companies with as many as 250 employees can now qualify rather than the previous 50 employees limit.
  • The scheme will also increase the annual investment limit for qualifying companies to £10m.
  • The amount of personal investment allowance that an individual can invest through the EIS (the Enterprise Investment Scheme)  will be raised to £1m per annum starting from April 2012.

Entrepreneurs’ relief

  • Under the new budget, the lifetime limit for entrepreneurs’ relief has doubled from £5 million to £10 million.
  • The new limit will apply from April 2011 and will mean that fewer entrepreneurs face capital gains tax when they sell their business.
  • The lifetime limit was originally set at £1 million when entrepreneurs’ relief was introduced in 2008.
  • It was extended to £2 million in April 2010 then raised to its current rate of £5 million in June 2010.
  • ‘Increasing the amount of the lifetime limit reduces a barrier to serial entrepreneurs who want to grow their business and reinvest gains, helping to make the UK a more attractive location for entrepreneurs,’ stated the Treasury.  

Further Enterprise Measures:

A significant package of other pro-enterprise measures was also announced, including:

  • The main rate of Corporation Tax, which was due to be cut by 1% in April, will now be cut by 2%. This will put the main rate at 26% next year, and will mean that by FY14/15, the rate will be 23% and further simplification of business taxes – including a long-term review on the integration of income tax and National Insurance
  • The introduction of 21 new enterprise zones across the UK  that will benefit from reduced business rates and planning regulations
  • Support for Innovation including an increase of SME R&D tax credits to 200% in April and 225% from FY12/13 and the government also introduced £100m of further funding for science and innovation.