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Flashcards in VCT and EIS Deck (6)
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Changes in VCT legislation in November 15 (4)

  • VCTs can no longer use funds to acquire business (mbo’s)
  • need to invest in younger companies (generally less than 7yo)
  • need to invest in smaller companies
  • different investment approach is required
  • some companies have chosen to wind up instead

Four advantage of keeping hold of shares in a VCT which is winding up rather than sell and invest in a new VCT

  • discount to NAV will close if NAV is achieved
  • expected timeframe I’d return if money less / do not need to tie money up for another 5 years
  • may be less risky
  • avoids selling costs of existing shares and buying costs of new VCT
  • avoids time out of the market

Four disadvantages of keeping hold of shares in a VCT which is winding up rather than sell and invest in a new VCT

  • no further tax relief
  • liquidity issues
  • may not achieve the expected price
  • share price could fall further

Conditions a BCT must meet to be approved by HMRC (6)

  • must be listed on stock exchange
  • all money raised by BCT must be employed within two years
  • income must be derived wholly or mainly from shares and securities
  • must not return more than 15% of its income
  • at least 70% of holdings must be in qualifying holdings
  • not more than 15% of holdings invested in a single company
  • a firm must have less than 250 employees at the date the shares are issued

Explain the tax considerations of a VCT (8)

  • tax relief of 30%
  • on investment up to £200,000
  • tax reduced
  • investor must have sufficient income tax liability to warrant the relief
  • relief is withdrawn if shares are not held for 5 years
  • dividends are tax free
  • gains on disposal are CGT exempt (no holding period)
  • losses on VCT can not be uses against gains elsewhere
  • forms part of estate on death for IHT purposes

Subscription rules and tax treatment of an EIS (10)

  • can invest up to £1mn
  • or up to £2mn if excess over £1mn is in knowledge -intensive business
  • 30% tax relief
  • up to level of tax liability
  • can carry back income tax relief to the previous tax year
  • reinvestment relief
  • available if proceeds of a business sale are invested within 3 years of sale
  • exempt from CGT upon sale
  • if held for 3 years
  • exempt from IHT
  • if held for 2 years