Gordon Brown is considering plans to scale back income tax reliefs on venture capital trusts and replace them with inheritance tax breaks as a means of ensuring long-term investment.
The Treasury is currently consulting on the tax reliefs, which run to the end of this tax year. One option is a reduction of the current 40% relief to 20% combined with IHT relief.
David Thorp, chairman of ISIS Equity Partners, who has been involved in the consultations, said: ‘There is a perception that the 40% tax relief is possibly too much.’
IHT relief is being considered in particular to encourage long-term investment in VCTs, which are commonly scheduled to run for between 10 and 15 years.
‘The Treasury is looking to see a permanent connection between high-net-worth investors and fast-growth companies,’ Thorp said. The current reliefs are thought to encourage a more fickle engagement, since investors can secure gains from the relief after the investment has run for only three years.
A system of IHT relief already exists for business assets and AIM companies, and would probably involve removing the investments from an individual’s estate after a specified period of time.
An encouragement to long-term investment would also discourage the emergence of VCTs regarded as abusive. These wind up as soon as possible and maintain capital purely to obtain the tax breaks.
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