Pre-Budget boost for UK VCTs

In today’s pre-Budget Report, UK Chancellor Gordon Brown has bowed to industry pressure by announcing plans to increase tax relief for investments in venture capital trusts (VCTs).

The ailing VCT market will applaud measures designed to attract more investment announced by UK Chancellor Gordon Brown in today’s pre-Budget Report.

Setting out his proposals, which if implemented will take effect from 6 April 2004, Brown announced that the limit for capital gains tax (CGT) relief on investments in VCTs and Enterprise Investment Schemes (EIS) would rise from the current £100,000 per year to £200,000 per year. In addition, income tax relief will be available on 40 per cent of investment in VCTs rather than 20 per cent.

The move follows intense lobbying by the British Venture Capital Association (BVCA), which conducted research in which 85 per cent of companies said that without VCT funding their business would either not have existed at all or would have developed less rapidly.

Despite this, the industry has suffered a disastrous fundraising collapse. In the year to 5 April 2001, the VCT market raised a total of £450m – which declined to £125m the following year and then £50m in the year to 5 April 2003. The BVCA argued that this was largely due to a reduction in the fiscal attractions of VCTs.

Also as part of the pre-Budget Report, Brown announced plans to create a new start-up fund for small businesses dubbed the Enterprise Capital Fund. No details have yet been announced of the fund, which is due to be up and running in the spring of 2004.