HM Treasury has launched a consultation, ‘Financing growth in innovative firms’, which proposes a new national investment fund to help young, growing businesses. Research indicates that additional venture capital investment of around £4bn a year would be required to give UK businesses an equivalent level of funding to that enjoyed by companies in the US. This consultation is part of the government’s ‘patient capital review’, announced in November 2016, addressing the need for long term, or ‘patient’, finance for small businesses in the UK.
The review currently regards the creation of a fund as a more effective way of increasing investment than through taxation measures. Potential sources include institutional investors such as pension funds, promoting retail investment through listed funds, and harnessing university spin-outs. The Treasury is not proposing new tax incentives as a way of supporting greater retail investment in listed patient capital funds, although the consultation seeks views on whether this is the right approach. Specifically, the consultation asks for comments on:
which tax reliefs and tax-advantaged investment schemes have most effectively supported the investment of patient capital to date;
areas where the cost effectiveness of current tax reliefs could be improved; for example, reducing lower risk ‘capital preservation’ investments in the venture capital schemes;
other ways venture capital schemes could support investment in patient capital, in the context of state aid restrictions and evidence on cost effectiveness;
when it is more appropriate for government to support patient capital through investment, rather than through a tax relief;
whether there an optimum minimum length of time of investment for entrepreneurs and investors to focus on the long term growth of their company;
other steps government could take to make current tax reliefs more efficient and effective; and
whether focusing resources on increasing investment provides better value for money than changes to the tax environment.
HMRC currently estimates the direct cost of tax schemes, that is, the level of tax foregone in relation to the size of the investment, at around 36% for enterprise investment schemes, 44% for venture capital trusts, and 56% for seed enterprise investment schemes.
Some suggestions for changes to existing reliefs or wider tax schemes, to support investment into patient capital funds, include:
a new ‘patient capital ISA’ in the form of an additional individual savings account allowance that can be invested in listed funds that make patient capital investments;
extending business investment relief (for which measures are to be included in Finance (No 2) Bill 2017); and
removing stamp taxes from the purchase of shares in closed-ended funds with a minimum level of investment in unquoted equities.
The consultation closes on 22 September 2017. Decisions arising from the consultation are expected to be announced at Autumn Budget 2017. See http://bit.ly/2hjIiJC.
HM Treasury has launched a consultation, ‘Financing growth in innovative firms’, which proposes a new national investment fund to help young, growing businesses. Research indicates that additional venture capital investment of around £4bn a year would be required to give UK businesses an equivalent level of funding to that enjoyed by companies in the US. This consultation is part of the government’s ‘patient capital review’, announced in November 2016, addressing the need for long term, or ‘patient’, finance for small businesses in the UK.
The review currently regards the creation of a fund as a more effective way of increasing investment than through taxation measures. Potential sources include institutional investors such as pension funds, promoting retail investment through listed funds, and harnessing university spin-outs. The Treasury is not proposing new tax incentives as a way of supporting greater retail investment in listed patient capital funds, although the consultation seeks views on whether this is the right approach. Specifically, the consultation asks for comments on:
which tax reliefs and tax-advantaged investment schemes have most effectively supported the investment of patient capital to date;
areas where the cost effectiveness of current tax reliefs could be improved; for example, reducing lower risk ‘capital preservation’ investments in the venture capital schemes;
other ways venture capital schemes could support investment in patient capital, in the context of state aid restrictions and evidence on cost effectiveness;
when it is more appropriate for government to support patient capital through investment, rather than through a tax relief;
whether there an optimum minimum length of time of investment for entrepreneurs and investors to focus on the long term growth of their company;
other steps government could take to make current tax reliefs more efficient and effective; and
whether focusing resources on increasing investment provides better value for money than changes to the tax environment.
HMRC currently estimates the direct cost of tax schemes, that is, the level of tax foregone in relation to the size of the investment, at around 36% for enterprise investment schemes, 44% for venture capital trusts, and 56% for seed enterprise investment schemes.
Some suggestions for changes to existing reliefs or wider tax schemes, to support investment into patient capital funds, include:
a new ‘patient capital ISA’ in the form of an additional individual savings account allowance that can be invested in listed funds that make patient capital investments;
extending business investment relief (for which measures are to be included in Finance (No 2) Bill 2017); and
removing stamp taxes from the purchase of shares in closed-ended funds with a minimum level of investment in unquoted equities.
The consultation closes on 22 September 2017. Decisions arising from the consultation are expected to be announced at Autumn Budget 2017. See http://bit.ly/2hjIiJC.
