Changes to VCT rules

Due to rule changes over the last few years, VCTs operate under several different regimes, depending on when funds were raised. Generally speaking older funds have more flexibility in their choice of investments. Overall, the aim of the changing legislation has been to ensure VCTs only invest in genuinely small enterprises.

From 2010 some new rules were introduced. VCTs will have the ability to invest in companies based outside of the UK, although in reality there are likely to be very few overseas investments. Previously VCTs could only invest in companies with at least 50 percent of their qualifying activities in the UK. This will be relaxed allowing investment in any company with a 'permanent base' in the country. VCTs will also be able to be listed outside of London on any European exchange. A further change relates to the amount a VCT can invest in loans to investee companies as opposed to equity. For older VCT funds the maximum is 70%, but from this year it is 30%, a further attempt by the Government to increase the risk profile of VCTs.

In the 2011 Budget the Chancellor announced future changes to VCTs to ensure they are targeted at small businesses in need of capital. This included the addition of "feed in tariff" businesses such as electricity generation from solar and wind to the list of excluded activities. However, these changes don’t take effect until the 2012/13 tax year.

There will also be changes to the qualifying company limits from April 2012. An increase in the size of company a VCT can invest in to £15 million from £7m, and an increase in the maximum number of employees from 50 to 250. Finally, there is to be a four-fold increase in the annual investment limit per qualifying company to £10m.