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Donald Stark| Head of Investment Taxation

Enterprise & Property Tax Team| Business and International Tax

HM Treasury, 1/Yellow, 1 Horse Guards Road




Alex Buckley

Venture Capital Schemes | BAI

100 Parliament Street




Dear Donald and Alex,

VCT/EIS relief for management buy-outs – a lobby for change

A Happy New Year to you both.

If the Chancellor has it in mind to increase capital gains tax rates so that they equal an individual’s highest rate of income tax, then there would be no loss to the Exchequer if, at the same time, the rules were changed so that VCT/ EIS relief could be made available for investments in management buy-outs, because the tax relief given by HMG on the new money invested would match the tax collected by HMG on the cash paid out to the retiring entrepreneurs.

An embellishment on such a proposal might be that MBO investments have to be made within 12 months of raising the new money so that there is no material time difference between the relief given and tax collected.

As there would be no balance sheet loss to the Exchequer there would be no net state aid – whatever new rules may be invented post Brexit.

Such a change to the VCT/EIS rules would merely facilitate the efficient recycling of risk from one generation of entrepreneurs to the next generation with access to the deeper management skills and the larger geographic and capital markets required to support the future growth and development of the UK SMEs on which our recovery depends.

We are now entering a major period of recession. This will inflict real damage on the UK economy and on people’s lives, not least because the usual avenues of counter cyclical government spending will have already been exhausted by COVID emergency measures. At some point the baton will need to be passed to the private sector. VCTs and EIS Funds could be a vehicle for both aiding recovery and providing opportunities for returns to brave investors.

The imposition of progressive restrictions on VCT and EIS activity designed by Treasury to encourage these funds to invest in earlier stage, riskier investments has led to a funding gap of our own making. In today’s COVID recessionary environment  this strategy is self-defeating. By restricting the tax incentive for private investors to commit to the small buyout sector we risk higher unemployment (extra social security payments and lost taxes) and the loss of critical business capacity to the UK economy.

VCT and EIS Fund managers have the experience, expertise and fund firepower to help buy-out entrepreneurs navigate their way through these challenges. A relatively small adjustment to current restrictions  could release a substantial source of private investment into critical areas of the UK economy. This would make sense for the recession entrepreneurs, for VCT and EIS investors who can fund them, for the Government in terms of the overall tax benefit and finally for the UK economy as a whole.


Best regards


Roger Blears