Recent VCT, EIS and SEIS changes

Significant changes that have been made over the past few years for VCT, EIS and SEIS

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Adrian Walton
Published: 31 Oct 2017 Updated: 13 Jun 2022

Significant changes that have been made over the past few years include the following:

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  • Clarification that investors are disqualified from claiming SEIS/EIS income tax relief if, together with associates, their shareholding or voting power exceeds 30% (previously there was an additional a 30% test for the aggregate of issuedshare capital and loans made to a company).
  • Replicating the definition of eligible shares for EIS purposes to that used for VCTs with respect to certain preferential rights in relation to dividends. Previously, shares with certain preferential rights were excluded.
  • Shares issued in connection with ‘disqualifying arrangements’ will not attract SEIS, EIS or VCT relief. This has been designed to catch the following two scenarios:
    (i) where the whole or majority of the amounts raised is paid to or for the benefit of another party:
    (ii) in the absence of arrangements, it would have been reasonable to expect that the qualifying activities would have been carried on as part of another business.
    For some time, HMRC has wanted to target companies specifically set up for EIS/VCT purposes that fulfil a financing role but have no real commercial substance; typically, with no employees or premises. These changes are designed to stop the scenario where all or most of the trading activities are
    sub-contracted to another party or parties.
  • Tax relief will also not be available under SEIS/EIS or from VCTs where the funds raised are to be used to acquire shares in another company. This particularly impacts on typical management buy-out and buy-in structures. For shares issued on or after 18 November 2015, this restriction was extended to disallow the acquisition of trade and assets, and intangible assets to be used in a trade.
  • Removal of the £1m a year limit on investment by a VCT in a single company (except for companies in a partnership or a joint venture).
  • Removal of the £500 minimum investment limit for EIS investments.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.