Chancellor George Osborne is aiming to make it easier and less risky for investors to back the UK's most promising technology companies, he said yesterday in the Autumn Statement.
He's doing this by reducing the capital gains tax that investors pay on profits they make when they sell shares in a business they've backed.
Specifically, the capital gains tax for investors is being reduced from the usual 18-28 percent down to just 10 percent.
However, the capital gains tax relief will only be offered to investors that reinvest any gains under the enterprise investment scheme (EIS).
Investment firm Octopus Ventures, which backs early-stage technology firms with £250,000 and £5 million, welcomed the reforms.
John Thorpe, business line manager for EIS at Octopus Investments, said: "The proposals make it more attractive for those who have successfully built and sold a business to reinvest in the next generation of EIS companies by removing punitive tax implications. Both these changes will help foster further investment into businesses across the country and should continue to broaden the appeal of EIS to a wider investor community.”
George Whitehead, head of Octopus Venture Partners, addedd: “It is great to see the incentives for investing through an EIS become even more compelling for seasoned entrepreneurs to support the next generation of UK business. Angel investors who have been there and done it before as an entrepreneur can add significant value to developing companies. We have first-hand experience of this through our own angel network that co-invest alongside some of our funds and can play a leading role in delivering the growth of successful businesses.”
The Treasury pledged £400 million to extend government-backed venture capital funds which invest in SMEs, called Enterprise Capital Funds.
The chancellor also announced that new digital processes will be introduced to make it easier for investors and companies to use EIS, SEIS (seed enterprise investment scheme) and VCTs (venture capital trusts).
"The digitalisation of EIS should simplify the administrative processes for EIS investors, their advisers and qualifying companies are required to complete, making EIS an even more accessible planning tool," said Thorpe.
Octopus Venture Partners is a network of approximately 100 business leaders, entrepreneurs and private investors providing an invaluable wealth of expertise and resource for our portfolio companies, as well as investing on a deal-by-deal basis alongside Octopus venture funds.
Read more about what the Autumn Statement means for the tech sector here.