Global appetite for UK tech: anticipation of exits and liquidity events is driven by a consistent appetite among global corporates, particularly those from the US, for UK tech companies. The historic weakness of the pound in the mid term has also served to enhance the attractiveness of UK-based tech investments, creating favourable conditions for investors seeking lucrative exit opportunities.
VCT vs EIS
Both the VCT and the EIS can offer significant tax advantages for investors; however, there are some crucial differences. With VCTs, investors are usually buying into an existing portfolio, whereas with EISs, investors are the underlying shareholders in the individual companies.
There are also differences in liquidity as investors in a VCT, in theory, are able to sell back their shares after the minimum holding period of five years via a buyback mechanism, whereas with an EIS an investor is holding investments until exit, and for a minimum of a three-year period.
VCTs are also able to offer tax-free dividends to investors, whereas EISs are more focused on generating capital growth – both, however, have no capital gains tax on any profits made by the investor.
Income tax relief at 30 per cent is available for both EISs and VCTs, and investors can choose to take the income tax relief in the year they invest or carry back to the previous tax year. This can help offset the risk normally associated with investing in early-stage and higher-risk companies.
CGT deferral is only available through investing in an EIS and is not possible through investing in a VCT. Deferral relief can be claimed against any amount of chargeable gain arising on the disposal of any asset where the gain is invested in EIS shares.
Loss relief is one of the key differentiators in terms of tax benefits when comparing EISs and VCTs. VCTs do not offer any loss relief to offset losses, whereas with EIS investments, should the value of EIS shares drop to nil or if the shares are sold for less than the original amount invested, loss relief is available. It allows an investor to offset a loss made on an EIS company against either their CGT bill or their income tax bill, depending on which better suits their individual needs.
An EIS investor will be able to offset a loss against their income tax bill for the current and/or previous tax year. The loss is deducted from the investor’s income before income tax is calculated. The value of this relief can be worked out by multiplying the value of their effective loss by their marginal rate of income tax.
