Enter to open, tab to navigate, enter to select
Consultation on share buy-backs by venture capital trusts
Practical Law UK Legal Update 1-540-4731 (Approx. 2 pages)
Consultation on share buy-backs by venture capital trusts
| Law stated as at 09 Sep 2013 • United Kingdom |
On 18 July 2013, the government launched a consultation on changes to the legislation on venture capital trusts (VCTs) with a view to preventing investors obtaining tax relief where the VCT buys back its shares and the investor reinvests the proceeds into the VCT.
On 18 July 2013, the government published a consultation document on proposed changes to the venture capital trusts (VCTs) rules.
VCTs were introduced to encourage investment in small and start-up companies. The rules provide for certain tax reliefs, including (subject to certain conditions ) income tax relief at 30% on amounts invested in VCTs. (For more information, see Practice note: Venture Capital Trusts.)
In the 2013 Budget, the government announced that it was concerned that VCTs operating enhanced buy-back schemes were not operating within the spirit of the rules (see Legal update, 2013 Budget: key business tax announcements: VCTs: buy-backs). The government has identified that some VCTs operate share buy-back schemes under which investors reinvest proceeds received on a buy-back within a short period of time. This enables investors to receive income tax relief on reinvested money without the VCT raising any additional funds. The government's preferred option is to amend the rules to restrict income tax relief in one or both (the document is unclear) of the following situations:
- An investor subscribes for shares in a VCT within a certain period of a sale of shares held in that VCT or another VCT managed by the same fund.
- A VCT's repurchase of shares is subject to an understanding that the investor will reinvest in the same VCT or another from the same fund management group.
Alternatively, changes may place a requirement on VCTs to invest at least 70% of funds raised in qualifying holdings or prevent buy-backs using money raised in the three years before the buy-back.
The changes are intended to take effect from April 2014 (or earlier if the government considers it necessary).
The closing date for comments is 26 September 2013.
If you don’t yet subscribe to Practical Law, you can request a free trial by completing this form or contacting the Practical Law Helpline.