Page 7 - Budget 2021

companies receiving investments under the EIS and from VCTs doubled to £10 million, although the lifetime limit
remains at £20 million.

• Further VCT rules tightening Several other technical changes were made to VCT rules in the Finance Act 2018,
including an accelerated investment of capital raised and an increase in the proportion of VCT funds that must be
held in qualifying holdings to 80%.

Interest in VCTs, EISs and SEISs has grown as more aggressive forms of tax planning have come under sustained (and
largely successful) HMRC attack and pension opportunities have been further constrained. In 2019/20 VCT fundraising
amounted to £685m. Most of the long-established VCTs have started their 2020/21 capital raising last year and some
have already reached their target.

PLANNING POINT

The best VCT offers can sell out quickly – even before you read about them in the weekend press. With many
offers already closed, do be sure you let us know as soon as possible if you want to make any VCT investment in
this tax year.

Pay Later, Not Now?

For higher and additional rate taxpayers, there can be a case for considering the options for tax deferral, once the
decision on which sector to invest in has been made. The potential advantages and disadvantages of tax deferral
include:

• What would be going to the Treasury instead remains invested, enhancing potential returns.

• There is the possibility that tax rates will be lower when the investment is realised. The opposite risk is that the
50% top tax rate could reappear following a change of government, although that is now probably over three
years away. However, your marginal tax rate could rise anyway because of the impact of tax bands and
allowances frozen until 2026.

• Some tax liability might disappear completely. Under current rules there is generally no capital gains tax on death,
although several voices, including the OTS, have suggested this relief should be withdrawn.

• The investor may change their country of residence, giving rise to a lower tax rate or possible tax savings during
the period of transition between the old and new homes.

There is a variety of tax-deferral options available but, as ever, advice is needed in making the ‘customer’ a client of
HMRC.

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