SJP - VCT Guide

21 RULES FOR VCTS 20 Budget 2017 The following measures were published in the 2018 Finance Act, which was enacted on 15 March 2018: Timing of deployment Accounting period 0 (ending on or after 6 April 2019) Accounting period 2 Accounting period 4 Accounting period 1 Accounting period 3 VCT FUNDS RAISED Deployment clock starts Deployment clock stops 1st regulatory deployment milestone 30% Funds in qualifying holdings* 80% Funds in qualifying holdings** 1 YEAR 2 YEARS 3 YEARS Rules governing portfolio construction There are a number of rules governing portfolio construction for VCTs. VCTs must: 1. Derive their income wholly or mainly from shares and securities. 2. NOT retain more than 15% of the income from shares and securities. 3. NOT hold an investment in a company that exceeds 15% by value of the VCT’s total investments. 4. Have at least 70% of their investments in qualifying trading companies (for VCT accounting periods beginning on or after 6 April 2019 this percentage will increase to 80%). 5. NOT make an investment in a company that causes that company to receive: • more than £5m of State-aided investment (which includes EIS and VCT investment) in the 12 months ending on the date of the investment (this increases to £10m for qualifying knowledge-intensive companies (more details are available on knowledge-intensive companies on page 27) from 6 April 2018); or • more than a lifetime total of £12m (£20m for a knowledge-intensive company). 6. In general, NOT invest in a company whose trade is more than seven years old (ten years for a knowledge-intensive company). 7. Only make minority investments (less than 50%) in investee companies. 8. NOT invest in a company that goes on to use the VCT funds to acquire another company or business. 9. VCTs must only invest in: • Qualifying holdings (i.e. unquoted where ”unquoted” means not quoted on a recognised investment exchange, for example the Main Market of the LSE, meaning that companies quoted on AIM can be VCT qualifying investments) in or qualifying trading companies that meet certain conditions); • certain permitted non-qualifying holdings (cash and short-term deposits, allowed for liquidity management purposes, together with listed shares and securities). At least 10% of a VCT’s investment in a company must be in “eligible shares” (broadly, ordinary shares that don’t carry any present or future preferential rights). The remainder of a VCT’s investment in a company can comprise any class of shares (even preference shares) or loans. However, loans must not be secured or guaranteed, be repayable within five years (other than in default situations) and must be at a commercial rate of interest. RULES FOR VCTS • 30% of funds raised by VCTs now need to be invested in qualifying holdings within 12 months of the end of the accounting period in which the funds were raised, for accounting periods beginning after 5 April 2018. • VCTs will need to increase the proportion of funds held in qualifying companies within three years of the end of the accounting period in which the funds were raised from 70% to 80%, for funds raised in accounting periods beginning on or after 6 April 2019. • These measures will mean that more money is invested in qualifying companies and that VCTs will hold less cash and liquid resources. • During the period that the new money raised is not invested in qualifying holdings, it is usually invested in cash, certain short-term deposits, listed shares and securities (including investment trusts) until funds can be deployed in suitable qualifying companies. *For all new funds raised in accounting periods beginning after 5 April 2018. **For funds raised in accounting periods beginning on or after 6 April 2019.