Tax breaks for institutional investors will help re-energize the UK’s venture capital industry, according to the British Private Equity and Venture Capital Association (BVCA).
In its 2014 Budget submission, the trade body argues that more needs to be done to incentivize institutional investors to put their capital to work in venture, which will in turn help to kick-start the UK’s economy.
The BVCA said the venture industry needs to fill the void of the current “equity finance gap” caused by the limited availability of debt finance – due to the still-fragile state of the domestic banking industry – which continues to hamper the growth prospects of UK companies.
To provide a better incentive, the BVCA wants the government to introduce a 30 percent tax relief for institutional investors that invest in UK venture capital trusts (VCT).
Currently the scheme offers private investors a tax exemption from income tax on dividends received from the VCT. But the BVCA wants institutions to gain this relief, too, via a tax credit on their other UK dividend income.
This would mean that for every £1 an institutional investor in a VCT receives in the form of dividends from UK quoted companies, 10 pence may be claimed back from HMRC, the UK tax authority, up to a total aggregate level of 30 percent of their investment in a VCT.
The BVCA is also proposing tax changes to Enterprise Investment Schemes (EIS) – which was designed to encourage investment in small- and medium-sized businesses.
It recommends the EIS tax relief – whereby investors can claim 30 percent of their EIS investment against income tax – be received immediately. Currently investors must wait until the fund finishes investing before they can submit a claim.
To read the BVCA’s full submission click HERE.