The government is to introduce legislationthat will prevent venture capital trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) from benefiting from Renewables Obligation Certificates and the Renewable Heat Incentive scheme. This will take effect from the Royal Assent of Finance Bill 2014, which is expected in July. This will not affect existing solar and wind funds, or VCTs which have shares in any company affected before that date, and EIS companies which issue shares to their investors before that date. However, it is unlikely that there will be new solar or wind VCTs and EIS going forward.
Following a consultation (read more on this), the government is also to prevent VCTs from returning capital that does not relate to profits on investments within three years of the end of the accounting period in which shares were issued to investors. This will take effect in respect of shares issued on or after 6 April 2014.
This is unlikely to be a problem for large generalist funds with distributable reserves. However new VCTs will find it harder to pay early dividends making it harder for limited life (also known as planned exit) VCTs which start from scratch.
The government will also consult on excluding VCTs and EIS from investing in low-risk activities that benefit from income guarantees via government subsidies.
But the government will consult over the summer on allowing VCTs and EIS to invest in convertible loans. At present VCTs can only invest part of their funds in loans, while EIS money has to go entirely into equity.
Meanwhile, the government has confirmed that the Seed Enterprise Investment Scheme (SEIS) Scheme will be made permanent.
