Venture Capital Trusts Seek Tax Relief
Byline: William Hutchings
The British Venture Capital Association (BVCA) is trying to persuade the UK government that venture capital trusts (VCTs) are the answer to the UK's aim of financing small businesses.The BVCA's motive is to support a section of its membership - the 50 VCTs with more than [pounds sterling]1bn ([euro]1.4bn) to invest in unquoted companies - that it fears is facing extinction. John Mackie, chief executive of the BVCA, says: "Over the past three years, funds raised by VCTs have collapsed from [pounds sterling]450m a year to just [pounds sterling]50m.
"There is no real optimism about the foreseeable future, with fundraising predicted to remain at about [pounds sterling]50m. There is general agreement that the industry is unsustainable at this level."
The BVCA's solution is to improve tax reliefs given to investors in VCTs. They can currently set off 20% of the value of their investment against their taxable income. If an investor puts [pounds sterling]20,000 into a VCT, his or her taxable income is reduced by [pounds sterling]4,000. If they pay income tax at the higher rate of 40% the tax bill is reduced by [pounds sterling]1,600.
The BVCA has proposed that the government doubles this relief, allowing investors to set off 40% of the value of their investment against taxable income.
Patrick Reeve, managing director of Close Venture Management and a member of the VCT external relations committee, says: "If we could get 40% relief it would transform VCTs into an investment that attracts many more people."
He believes the overall effect would not reduce the government's tax revenue as VCT investments create taxable salaries and profits. He says: "If Chancellor Gordon Brown is worried about helping rich guys, I would point out that they are the ones with the money who can invest in the companies he wants to see supported. And the minimum investment in our VCT is [pounds sterling]1,000, so an investor doesn't have to be that rich."
The government has its own agenda, however, and it will only be persuaded to back the BVCA's proposals if the association shows that VCTs help it achieve what it wants. …