The economic secretary has refused to commit to extending the sunset clause for venture capital trusts despite being asked twice by MPs.
In an evidence session yesterday (June 15), Andrew Griffith was asked twice whether the government would commit to extending the sunset clause for VCTs, enterprise investment schemes and seed enterprise investment schemes.
Harriett Baldwin, chairperson of the committee, said there is uncertainty in the sector about the extension of the sunset clause, which is due to run out in 2025, and the sooner that can be clarified the better.
Griffith responded that chancellor Jeremy Hunt has given a “very clear” statement that the schemes will run in 2025, but declined to commit to an extension.
“It is the nature of parliament that we do not bind our successors any more than we absolutely need to to give people that…certainty,” he said, adding that people can look at the “longevity” of the schemes and see that there is a “real commitment” in government for the tax reliefs.
“I am happy to reaffirm today my belief that these schemes work well for the British economy, they work well for taxpayer fairness,” he said.
When pushed by committee member John Baron, Griffiths said he did not want to go beyond what the Chancellor has already said.
“Most of the people [in the venture capital sector] I have engaged with have taken that as the clear statement that it is.”
Tax reliefs
The current venture capital legislation gives investors in VCTs, EIS and SEIS significant tax breaks on their investments.
For example, VCTs invest in higher risk, early stage companies, and come with a 30 per cent tax relief if the investments are held for five years, with any dividends earned also tax free.
The surge in popularity in VCTs in particular, which saw over £1bn invested last year, is set to continue as the tax burden on wealthy people rises with a number of tax thresholds frozen until 2028, including inheritance tax and income tax.
The point at which high earners start paying the top rate of tax is being lowered from £150,000 to £125,140.
The impact of the rate of inflation, which was 8.7 per cent last month, will pull more people into higher tax bands.
However, despite the government committing to the tax breaks, there has been no official confirmation that the sunset clause, which was created as part of European Union state aid rules, will be renewed.
The clause means VCT relief is only available to subscribers in the VCT for shares issued before April 6, 2025.
sally.hickey@ft.com
