The HMRC budget release states: "The new legislation will increase the eligible shares holdings requirement to 70 per cent, but will also change the definition of "eligible shares" to allow VCTs to include shares which may carry certain preferential rights to dividends."
The Finance Bill containing the Budget changes, usually receives Royal Assent to become the Finance Act in the summer. However, the General Election meant that a slimmed down version, not including the measures relating to VCTs, received Royal Assent in early April. When these will now be enacted is uncertain, and will depend on the incoming government.
Although the eligible shares changes will not apply to funds raised before the legislation is passed, can we expect an impact on the investment strategies of future VCT offers? To try to answer this, Clubfinance surveyed VCT managers in relation to VCT offers open as at 30 April 2010.
Offers open as at 30/4/2010
| VCT offer | Expected closing date |
| Acuity Environmental VCT & VCT 2 | 18/11/2010 |
| Acuity Growth VCT (top-up) | 30/6/2010 |
| Acuity VCT 3 (top-up) | 30/6/2010 |
| Albion Development VCT 'D' Share | CLOSED 30/4/2010 |
| Bluehone AIM VCT2 (top-up) | 30/6/2010 |
| British Smaller Technology Companies VCT 2 (top-up) | 31/5/2010 |
| Downing Absolute Income VCT 1 (top-up) | 1/6/2010 |
| Downing Absolute Income VCT 2 | 1/6/2010 |
| Edge Performance VCT 'F' Share | 4/6/2010 |
| Elderstreet VCT (top-up) CLOSED | 30/4/2010 |
| Foresight 3 & 4 VCTs Linked Offer (top-up) | CLOSED 30/4/2010 |
| Foresight Planned Exit VCT Fund Linked Offer | 30/6/2010 |
| Hargreave Hale AIM VCTs 1&2 Joint Offer (top-up) | 31/7/2010 |
| Ingenious Entertainment VCT 1 & 2 'D' Share | 30/7/2010 |
| Investec Structured Products Calculus VCT | CLOSED 30/4/2010 |
| Maven Income & Growth VCTs Linked Offer (top-up) | CLOSED 30/4/2010 |
| Noble AIM VCT (top-up) | 12/8/2010 |
| Northern 3 VCT (top-up) | 12/5/2010 |
| Octopus AIM VCT (top-up) | 31/5/2010 |
| Octopus Titan VCT 4 | 31/8/2010 |
| ProVen VCT & ProVen Growth & Income VCT 'D' Share Linked Offer | 31/5/2010 |
| ProVen VCT, ProVen Growth & Income VCT & ProVen Health VCT (top-up) | 31/5/2010 |
| Puma High Income VCT CLOSED | 30/4/2010 |
| The AIM Distribution Trust (top-up) - now Downing Distribution VCT 1 | 31/5/2010 |
| TP10 VCT | 31/5/2010 |
| TP70 2010 VCT Trading Share Class Offer | 31/5/2010 |
| Ventus & Ventus 2 VCTs Joint 'C' Share Offer (top-up) | 31/5/2010 |
Source: Clubfinance
Survey Results*
In terms of how VCT managers expect the money raised from their latest offers to be invested (see Figure 1), AIM VCTs expect to invest more than 70 per cent of their qualifying holdings in eligible shares even though the current requirement is 30 per cent. (The AIM Distribution Trust (now Downing Distribution VCT 1) was excluded as the investment policy has changed from being an AIM VCT.)
Although some Generalists and Specialists expect to maximize the use of non-equity, most expect to be close to or above the 70 per cent level. Limited Life VCTs tend to make maximum use of non-equity instruments such as loan notes so expect to invest 30 per cent in eligible shares.
These results suggest that AIM VCTs will be unaffected, and Limited Life VCTs have the greatest potential to be affected. To investigate further, Clubfinance also asked managers about the impact on future fund raisings (see Figure 2). The responses reveal that managers are generally confident that it will be business as usual under the new rules. Managers are likely to structure deals to achieve the same or similar objectives as before and this is likely to be helped by the promised widening of the definition of eligible shares.
*Respondents: Albion Ventures, Bluehone Investors, Downing Corporate Finance, Elderstreet, Ingenious Ventures, Amati Global Investors, Octopus Investments, Shore Capital, Climate Change Capital.
Philip Rhoden is a director of Clubfinance Ltd. The views expressed are his own. No recommendations are implied.