Great news for investors and startups in the UK: The European Commission has given the thumbs-up to the UK government’s plan to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) for another 10 years. This extension will push the sunset clause for these schemes to April 2035. The European Commission's approval came in a letter dated 22nd July 2024, marking a big step forward in securing this extension.

How We Got Here

The journey to this point started in April 2023 when the UK government began talks with the European Commission. The goal was to make sure the proposed extension wouldn’t run into any regulatory issues with the EU. The first signs of this extension appeared back in November 2023, when the government announced plans to extend the EIS and VCTs to 2035. This plan became law in February 2024, through the Finance Act.

However, there was a catch: the Act included a clause saying:

"This section comes into force on such day as the Treasury may by regulations appoint.”

In simple terms, this meant that the extension wouldn’t actually happen until the Treasury gave the final go-ahead. This delay was mainly because the Treasury was still in talks with the European Commission to make sure everything was above board.

Recent Updates

Just last month, the Treasury announced that they were in the ‘advanced stage’ of finalising this process. Now, with the European Commission officially saying they have no objections, it’s a very positive sign that the extension is on track.

What This Means for Investors

The EIS and VCTs are crucial for supporting early-stage companies in the UK. They offer tax incentives to investors willing to take risks on young businesses, helping to fuel innovation and growth. Extending these schemes to 2035 would provide long-term certainty for investors and startups alike, ensuring continued investment in the UK’s entrepreneurial ecosystem.

While EIS and VCTs offer attractive tax incentives, they are high-risk investments. They are generally suitable only for investors who understand the risks involved, including potential loss of capital, illiquidity, and holding period requirements.

Looking Ahead

The European Commission’s approval is a major step forward, and it looks like the Treasury might soon confirm the extension. If all goes well, this extension will keep the EIS and VCTs in place for another decade, providing a big boost to investors and startups across the UK.

For now, we’re keeping our fingers crossed and waiting for the final word from the Treasury. But with this latest development, things are looking very promising.

Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 565716). This article is a financial promotion and is intended for UK investors only. The content is for information purposes only and does not constitute investment advice or a recommendation to invest. SEIS and EIS tax reliefs depend on individual circumstances and may change. The value of investments may go down as well as up, and investors may not get back the full amount invested. Past performance is not a reliable indicator of future performance.  Investment outcomes can differ substantially, potentially resulting in the loss of all your capital invested. Shares in early-stage companies are illiquid: you may be unable to sell your holding for several years, if at all. Investors should not rely on this article as a basis for investment decisions and must consider the illiquid and high-risk nature of early-stage investing. No warranty as to future outcome is implied nor should one be inferred. Tax treatment depends on individual circumstances and may be subject to change. Investments of this type are generally not covered by the Financial Services Compensation Scheme or the Financial Ombudsman Service if the underlying companies fail.