Budget: EIC and VCTs get two years to invest their funds but no extension of tax relief

EIS will now have two years to invest the money raised by a share issue into a qualifying activity, or if later within two years of the commencement of a qualifying activity. Currently EIS have to invest 80 per cent of a fund raising within 12 months of the share issue, with the balance invested in the next 12 months.

The rule change will take effect from 22 April.

However, Martin Churchill, editor of the Tax Efficient Review does not believe the change is significant.

He said: "Today's changes are meaningless tinkering. A real positive would have been if the rate of income tax relief had been raised to 40 per cent." 

Priti Patel, tax shelter investment consultant at Allenbridge Group said: "It is a bit of a surprise that there have been no changes to income tax relief as many thought there would be."

Nevertheless Churchill believes that in future there may be increased interest in VCTs from higher earners due to restrictions on pension tax relief for those on incomes over £150,000, to taper it down to 20 per cent. These restrictions will be implemented from April 2011.

Another change announced regards carrying back income tax relief to the previous year by claiming that qualifying shares are treated as having been issued in the previous year. Currently this is restricted to shares issued before 6 October and subject to a limit of half the subscriptions in that period, up to £50,000.

These restrictions will be removed.

But Churchill said very few VCT shareholders do this and typically with sums of an insignificant size, so the change does not offer much benefit.