Budget Update

The budget statement this week regarding EIS and VCT was very straightforward, with little that was new. However, it could have been much worse.

Although CGT has gone up, nearly all other reliefs have been preserved. This is particularly helpful for investors looking to reduce inheritance tax (IHT) liability and to make allocations to venture within their pension.

With the immediate rise in CGT rate to 28%, we anticipate a swift increase in interest in the Enterprise Investment Scheme as the higher CGT rate now enhances the value of investing under EIS. Investors will be keen to know how they can defer their CGT bill, whilst at the same time contributing to driving innovative British companies forward with an investment that will be free of CGT. By combining 20% income tax relief with 28% CGT deferral relief, investors can now make a tax saving of up to 48p for every £1 invested. Furthermore, once the investment has been held for 2 years it qualifies for 100% BPR, effectively delivering a further 40p of tax relief for every £1 invested in IHT relief.

The coalition Government has acknowledged the need to reduce the structural deficits through raising tax rates on individuals. However it has at the same time, determined measures to help stimulate economic growth and reduce the tax burden on businesses. This should act as the main driver to improve the longer term economic prospects of the UK economy.