The government is consulting on plans to allow for a dividend tax exemption for investments ‘made through a knowledge-intensive fund’ which could include Enterprise Investment Schemes (EIS).
In new EIS fund structure to be built on the current rules.
One of these options proposed was a ‘patient dividend tax exemption [which] could be applied in respect of investments made through a knowledge-intensive fund’.
‘Investors would not pay tax on dividends received from knowledge-intensive investee companies after a fixed holding period (say five or seven years),’ the Treasury said.
Another option put forward by the Treasury was changing capital gains tax relief on EIS investments by allowing for a write-off of a percentage of capital gains on reinvestments into a knowledge intensive fund.
The Treasury said VCT schemes have traditionally focused on ‘later stage’ investments rather than at the point when companies ‘first need scale of capital’. As such the Treasury said criteria for VCT schemes will also be changed to ensure these funds are investing in ‘knowledge-intensive companies’ and reflect current EIS rules.
EIS fund model criteria will also be changed to the following:
- any tax advantages for investors must be proportionate to a identified market failure that is adversely affecting knowledge-intensive companies;
- it must attract investors while not unreasonably distorting the market;
- the economic benefits must be commensurate with the Exchequer cost, and
- it must not introduce unfairness to the tax system.
The Treasury also said the new fund model would need to be focused on 'knowledge-intensive companies’ but could allow for between 10%-20% of investments to be made into 'non-knowledge intensive'