This year’s Budget statement included a raft of surprises for investors and savers, including some changes to the rules surrounding venture capital trusts (VCTs). Some of them, such as the rules that investments in VCTs conditionally linked to a share buy-back or made within six months of a shares disposal will no longer qualify for tax relief, were already known about from the Autumn Statement.
The new addition, and one that could potentially have an impact on some parts of the VCT sector is the decision to “exclude companies benefiting from Renewables Obligation Certificates (Rocs) and/or the Renewable Heat Incentive scheme (RHIs) with effect from Royal Assent of the Finance Bill 2014”, which is scheduled for late July.
An apparent reason for the change was explained in the Budget documents as: “The government is concerned about the growing use of contrived structures to allow investment in low-risk activities that benefit from income guarantees via government subsidies and will therefore explore a more general change to exclude investment into these activities, consulting with stakeholders.”
This consultation is expected to take place over the summer, but the impact it will likely have is still unclear.
Currently there are 14 VCTs focusing on renewable energy, mainly listed in the AIC VCT Specialist: Environmental sector, however not all of them are likely to be affected by the announcement.
Jason Hollands, managing director, Bestinvest, says: “The latest Budget signalled some changes to the VCT rules (and EIS) in respect of their ability to invest in certain types of renewable energy companies.
“The change does not prevent investment into companies involved in anaerobic digestion or hydro-power which benefit from Feed in Tariffs (FiTs), so these will remain eligible areas for VCT investment following the Royal Assent of the Finance Bill as it currently stands.”
But he points out the Budget’s wider consultation suggests “a wider clamp down of investment into businesses that benefit from subsidies can’t therefore be ruled out”.
The Roc was introduced in 2002 to provide incentives for the deployment of large-scale renewable electricity in the UK. According to the Department for Energy and Climate Change, the Renewable Obligation requires licensed UK electricity suppliers to “source a specified proportion of the electricity they provide to customers from eligible renewable sources”.
Meanwhile, the RHI is a long-term financial support programme for renewable heat, with the RHI paying participants of the scheme that generate and use renewable energy to heat their buildings.
At the time of the Budget announcement Ian Lowes, managing director of Lowes Financial Management, notes: “Quite a few of the renewable VCTs make use of Rocs, as an income stream in conjunction with the general sale of electricity. Going forward, the launch of renewable VCTs will be difficult given the very narrow range of renewable investments that will remain eligible.”
Nyree Stewart is features editor at Investment Adviser
