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Patient Capital Review – the impact on investments

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From a financial planning point of view, one of the key interests of the Chancellor’s Autumn Budget was to hear the Government’s reaction to HM Treasury’s ‘Patient Capital’ Review. The review looked at how Britain helps start-up companies and new innovation firms gain funding, in particular deciding if current government backed schemes are aiding this sector in line with expectations.

From our perspective, the main investments that were caught by the review were Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT) and Business Relief (BR) IHT products. Each of these investment products provides tax reliefs and long term growth potential that satisfy a number of our clients’ financial planning objectives.

Prior to the Chancellor’s speech, there had been rumours aplenty around what the Government was going to do following the Patient Capital review. This ranged from reducing future tax reliefs, increasing the terms to maturity and prohibiting investments in asset backed investments where there is no risk to the investor.

Luckily, the changes that have been introduced have, on the whole, been positive, broadening our financial planning options. The main announcements are as follows:

Qualifying Trades

Much of the talk prior to the budget had been about the increasing number of asset-backed or low risk investments that were being made via both VCTs and EIS. As the Government was offering generous tax reliefs to investors in these schemes, they wanted to ensure that they were getting value for money and that funds raised were being funnelled to the sectors that would help grow the economy.

To help ensure that these schemes are being used as intended, HMRC will take the investment’s objectives into account when reviewing a VCT or EIS. It will look particularly at planned growth over the long term and at whether there is a significant risk that the investment could lose more capital than the original net investment. Full guidance will be published in the coming weeks, but there will be no retrospective issues, so you don’t need to be concerned about changes affecting your existing investments.

Enterprise Investment Schemes

At present, individuals can invest up to £1 million into EIS companies in order to qualify for tax reliefs. For the 2018/19 tax year this will increase to £2 million provided that any amount over the initial £1 million threshold is invested into “knowledge intensive” companies. Given that EIS qualify for 30% income tax relief, business relief for IHT planning and defer capital gains tax, we would view this as a good financial planning opportunity.

Venture Capital Trusts

There were no amendments to the holding periods, tax reliefs or investment amounts for VCTs. However, in line with EIS there will be amendments to the underlying investments in order to ensure that the capital raised is being pushed to the sectors that require it most.

Business Relief (IHT) Products

There were no amendments made to this area, although the government has confirmed that it will keep the sector under review. Therefore, there is no impact on AIM ISA/portfolios or standalone IHT estate planning products. This is a big positive as it allows 1825 to continue to aid our clients’ long term estate planning objectives.

We have to wait for the full details to be published shortly, but on the whole we view the steps that the Government has taken as being positive for the sector and the UK economy. If you have any queries on this topic please do contact your financial planner.

 

 

The information in this blog or any response to comments should not be regarded as financial advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Tax laws and rules may change in the future; this article is based on our understanding in November 2017.

 

 

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