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Markel Tax

13 Mar 2018

Financing growth in innovative firms: EIS knowledge-intensive fund consultation

The objective of this consultation is to look at the capital gap that knowledge-intensive companies face, and to consider an extension to the venture capital schemes to encourage “patient capital”.

Patient capital is defined in the consultation as “long-term investment in innovative firms led by ambitious entrepreneurs who want to build large-scale businesses”. The need for this type of capital has been recognised in recent changes to the EIS and VCT schemes, but the aim here is to look at a new type of fund based on the EIS framework.

Several alternative approaches are outlined in the consultation. The options that are proposed are as follows:
  1. A “patient” dividend tax exemption which would apply after an initial holding period of about five to seven years.
  2. A write off of capital gains reinvested in a fund, similar to the exemption afforded to SEIS investment.
  3. An extended carry back of income tax or CGT deferral, allowing a carry back greater than the one year carry back allowed for EIS relief.
  4. Up-front tax relief allowing for income tax and CGT deferral relief for investment in the fund on the basis that the capital is invested within a specified time frame. Investments would need to be held for a minimum period of three years.
These proposals are at an early stage, but seek to encourage investment in innovative companies that are not expected to produce a return in the short term.
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Next article in series

13 Mar 2018

Corporate tax and the digital economy: position paper

The speed and scale of the changes caused by digitalisation have had implications for the UK tax system especially in respect of corporation tax, where the development of certain business models has challenged the understanding of how and where companies create value and ultimately how that value is taxed.

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