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Budget countdown for higher earners

With less than a week to go before the Budget the rumour mill is in full spate. With every passing remark being scrutinised in depth by the financial press it is sometimes difficult to differentiate between controlled leak and mere speculation.

One area hitting the headlines recently has been that of Venture Capital Trusts (VCT). George Osborne has spoken of “question marks” over the future of Venture Capital Trusts leading to speculation on whether they may be scrapped in the Budget. This speculation initially seems to sit at odds with the Coalition’s plans to “rebalance away from over-reliance on debt finance and government spending towards more investment and exports”.

George Osborne’s remarks could be taken as a reaction to the recent recommendation from the Office of Tax Simplification to align the tax regulations for Venture Capital Trusts and Enterprise Investment Schemes. Both VCT and EIS can be effective elements within a tax planning portfolio for higher rate tax payers.

One other tax efficient scheme which is under review is that of Enterprise Zone Syndicates. The current EZS scheme is due to expire at the end of the present tax year and although the government has announced its intention to create further Enterprise Zones the tax and investment regulations have yet to be announced.

Enterprise Zone Syndicates have successfully funded development in deprived areas of the UK, most famously in Canary Wharf. For higher rate tax payers, investing in an EZS via a mix of direct investment and limited recourse loan can result in an immediate cash positive return of just under £20,000. This cash positivity is due to the investor claiming capital allowances for their investment.

In the current financial climate potential investors may be a little concerned regarding the occupancy level of the EZS building. Contracts drawn up with developers include a guarantee by the developer to pay syndicated income until such time as the building is let. This income initially services the bank loan. Incoming tenants have to be acceptable to the syndicate and the lead bank and tend to be large companies or government bodies. This helps to ensure continuity of servicing for the loan element of the EZS.

With the present EZS regime ending at the end of the 2010/2011 tax year there is great interest in the remaining few schemes. Those interested in exploring investing in an EZS should act sooner rather than later, initially by telephoning Simon Newsham for further information.

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