Budget 2017

[marben100]

The forthcoming budget could have implications for VCT and EIS investors. Some thoughts from Cliff Weight here: https://www.sharesoc.org/blog/vcts/vcts ... -response/

[scotia]

From the Budget Document - Searched for "Venture Capital":-

doubling the annual allowance for people investing in knowledge-intensive companies
through the Enterprise Investment Scheme (EIS) and the annual investment those companies
can receive through EIS and the Venture Capital Trust scheme, and introducing a new test to
reduce the scope for and redirect low-risk investment, together unlocking over £7 billion of
growth investment

backing overseas investment in UK venture capital through the Department for International
Trade, expected to unlock £1 billion of investment

[Vulgaris]

"doubling the annual allowance for people investing in knowledge-intensive companies
through the Enterprise Investment Scheme (EIS) " Blah, blah.

Thanks, Scotia

Minimising one's tax liabilities is, I find, very knowledge intensive

[Vulgaris]

Various changes all designed to raise the risk of VCTs announced. See:

https://www.investmentweek.co.uk/invest ... dget-shell

[Kidman]

From HMRC's policy paper:-

From the date of Royal Assent:

VCTs may no longer offer secured loans to investee companies, and any returns on loan capital above 10% must represent no more than a commercial return on the principal

From 6 April 2018:

the ‘grandfathering’ provisions affected by this measure will not apply to new investments made by VCTs
VCTs will be required to invest 30% of funds raised in an accounting period beginning on or after 6 April 2018 in qualifying holdings within 12 months after the end of the accounting period

From 6 April 2019:

the period for reinvestment of gains on disposal of qualifying holdings investments will increase from 6 to 12 months
the proportion of VCT funds that must be held in qualifying holdings will increase from 70% to 80%

[BusyBumbleBee]

Amati seem to have been very good at lobbying here inasmuch as it seems their proposed merger can go ahead without any implications for holders who would have been caught up in the trap of buying and selling or whatever, within six months : see : https://www.gov.uk/government/publicati ... al-mergers
which includes this statement

The problem was raised by a representative body after it was contacted by a VCT planning a merger.

and also https://uk.advfn.com/stock-market/londo ... s/75958742 where they mention the problem.

As previously announced, the boards of the Companies believe that a merger is commercially in the best interests of both Companies and their respective shareholders but are currently waiting on clarification of a particular tax point before putting a proposal to shareholders. That clarification is hoped to be forthcoming in the near future. The unresolved tax issue would only be relevant if the potential merger proceeds and has no current impact on either of the Companies. Any merger would be subject to the prior approval of the shareholders of the Companies. Under the terms of the Prospectus, Amati VCT 2 plc has reserved up to 55 million new Ordinary Shares (Consideration Shares) to issue to Amati VCT shareholders as consideration for the transfer of the assets of Amati VCT to Amati VCT 2 in the event that the potential merger proceeds.

The directors have also put in a massive vote of confidence in the companies : see https://uk.advfn.com/stock-market/londo ... n/76138216 where one director and his family have invested £420,000 in the past 12 months and

Following this transaction Peter Lawrence has 375,844 shares in the Company, amounting to 0.49 per cent of the issued share capital, as enlarged by this allotment. Michael Lawrence and Louise Lawrence have 236,704 and 260,952 shares respectively in the Company, amounting to 0.26 per cent and 0.30 per cent respectively of the issued share capital, as enlarged by this allotment.

The NAV has been going up like a rocket this year as well, so at least one VCT has been doing rather well.

[BusyBumbleBee]

I liked this quote from a respected manager on both the IC site and https://www.scmagazineuk.com/budget-tec ... le/709184/

Investors generally welcomed the moves with Patrick Reeve, managing partner, Albion Capital, saying:“The Treasury's intention to focus the industry on innovation and growth is welcome. We are highly supportive of innovation and committed to finding and backing more ambitious businesses in areas where we see excellent growth potential, such as digital healthcare, automation, cyber security and data analytics.”

[Retiringat51]

The directors have also put in a massive vote of confidence in the companies : see https://uk.advfn.com/stock-market/londo ... n/76138216 where one director and his family have invested £420,000 in the past 12 months

The Lawrence family must be hotching wealthy.

Father is also on the Board of Baronsmead Venture Trust (BVT) and needless to say a similar RNS about significant family investment in this one was made on 1 November 2017.

https://markets.ft.com/data/announce/de ... V2M977TUB9

[timbo003]

There were a couple of publications from HMRC earlier this week arising out of the recently completed PCR and the November Budget, see https://philiphareassociates.tax/ for detailed commentary:


Streamlining the advance assurance service - consultation response:
https://www.gov.uk/government/uploads/s ... sponse.pdf

Venture Capital Schemes: Risk-to-capital condition draft guidance:
https://www.gov.uk/hmrc-internal-manual ... al/vcm8500


Philip also draws attention to the proposed changes in the statutory instrument which deals with breaches in VCT rules arising from VCTs holding non-qualifying investments:
https://philiphareassociates.tax/news/v ... uary-2018/

[scotia]

Re

Streamlining the advance assurance service - consultation response:

They (UK gov) propose to "digitise" the scheme. A strange use of language. I assume they mean it will go online, with forms of a specific pattern that can be filled in and returned by applicants. Nothing to do with converting an analog signal to a digital version.

Ignoring such semantics, there seems to be a considerable amount of sense in the proposals - e.g. don't waste government time seeking assurance on speculative investments that you probably don't mean to proceed with, and don't waste government time applying for schemes that are simply tax reduction wheezes. Real Venture Capital Investment proposals only, please!

The paper interestingly states that although they (UK gov) will continue to provide a (voluntary) advance assurance scheme, they feel that there should be plenty of external advisers who should be able to make these decisions independently. I think they shot themselves in the foot in this case by the way they treated the Oxford VCTs. They tried to apply a draconian punishment for a simple infringement of VCT rules whose rectification was proposed by the manager. It required the brave action by the manager to threaten to take this to the highest level, before HMRC backed down. So if I were a VCT manager, I would absolutely make sure that I had HMRC advance assurance, and not rely on independent advice.

[Kidman]

There have been various changes to the VCT non-qualifying investments rules over recent years including the requirement to be 80% in qualifying investments from 6 April 2019. This has and will reduce the impact of such investments. When VCTs started they could use gilts and get a reasonable return that allowed them to pay a divdend but that hasn't been available for the last decade so some like Baronsmead and Amati have resorted to their in-house small-cap equity funds.

Reading the Baronsmead Venture Trust annual report I notice that last year's gain from the CF Livingbridge UK micro cap trust (ex Wood Street) was about £5m (page 64). This probably counted for about 40% of the year's NAV uplift. Assuming the funds continue to perform, what will happen when VCTs get less benefit from this source? Lower returns and lower performance fees for the managers (£704k for Livingbridge last year, page 19)

[rhowitt]

The point on the impact on the Baronsmead results of investment in the micro cap fund is well made. However I think it us unlikely that such a good performance is likely to be repeated over the medium term. The change in valuations on Aim have been a massive help to the micro cap sector in the last few years. I feel it is very instructive to read the manager's reports in the Artemis VCT annual accounts ( by far the best performer in the Aim VCT space over the long term). He suggests that valuations are in general stretched.
Moving topic onto Aim VCTs generally, the best Aim VCTs such as Artemis and Amati tend to run their winners. A significant impact of recent legislative changes is the limiting of their ability to further inject money into those winners.