The Budget announced that a recommendation previously made by the Office of Tax Simplification to align EIS and VCT rules will be implemented.
From 6th April 2011, the level of income tax relief available for new investments into an EIS will increase from 20% to 30%.
There will also be a series of changes from 6th April 2012 to EIS investment limits for individuals and the schemes themselves.
From 6th April 2012, the maximum amount an individual can invest in an EIS each tax year will double from £500,000 to £1m.
EIS and VCT qualifying investment rules will also change from 6th April 2012, with the threshold for qualifying companies increased to fewer than 250 employees and no more than £15m of gross assets immediately before investment.
This will replace the current rules which limit investment in companies to those with fewer than 50 employees and no more than £7m of gross assets immediately before investment.
The Enterprise Investment Scheme (EIS) was created to offer help to smaller companies in order to raise finance. It offers a range of tax reliefs to investors who buy new shares in those companies.
EIS companies are smaller and tend to represent a much higher risk proposition than those investors are traditionally used to. For this reason, it is important not to allow the tax tail to wag the investment dog when it comes to an investment in an EIS.
The changes to qualifying company limits from April 2012 will go some way to reducing the risk level of the companies in which EIS can invest, but even a company with 250 employees and £15m of gross assets can represent a very risky investment proposition.
When investing in an EIS or VCT, it is important to understand how the investment fits into your overall Financial Plan, in terms of both tax breaks and potential investment returns.
Do speak to us if you have any questions about tax-efficient investing or these new Budget announcements.
Photo credit: Flickr/alancleaver_2000
