08 May 2015

Announced in the Budget, the government has set out the detail of changes to the investment rules for Enterprise Investment Schemes (EIS) and venture capital trusts (VCTs).

Total investments by VCTs and EIS will be capped at £15 million, although this is being increased to £20 million for knowledge-intensive companies. In respect of knowledge-intensive companies the employee limit is also set to be increased from 249 employees to 499 employees.

The new rules also smooth the interactions between tax advantaged schemes by removing the requirement that 70 per cent of the funds raised by companies under Seed EIS schemes must have been spent before they can raise EIS or VCT funding.

VCTs and EIS will also no longer be able to invest in a company that is more than 12 years old, except where the investment will lead to a substantial change in the company's activity, which will be met where the total investment represents more than 50 per cent of turnover averaged over the preceding five years. This exception means that if a company older than 12 years comes up with a transformative idea or innovation then it is possible it could still receive funding.

The legislation will not be retrospective so it will not affect existing investments in VCTs and EIS. It will be implemented from the date of EU Commission approval and, for that reason, was not contained in the Finance Bill 2015.

Therefore, the legislation will not come into force until later in the year, possibly in a second 2015 Finance Bill to be introduced after May's General Election – assuming the Commission has given its approval by then.

Key contact

Ian Carnochan

Ian Carnochan Partner

  • Tax
  • Corporate Tax
  • Real Estate Tax

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