VCM10030 - Introduction: outline history of the venture capital schemes

The first initiative to be taken with a view to encouraging investment in small private trading companies was a facility for capital losses on unquoted shares of such companies to be relieved against income tax. This was introduced in 1980. It remained substantially unchanged until 1998, when it was aligned with the provisions of the EIS. It is referred to in this manual as 'VC loss relief'.

In 1981 a scheme called the Business Start-Up Scheme (or Relief for Investment in New Corporate Trades) was introduced. It was superseded in 1983 by the Business Expansion Scheme (BES), which provided relief for investment in both new and existing trading companies. In 1986 BES was extended to give exemption from CGT in cases where BES relief had been given.

BES came to an end at the end of 1993, when it was replaced by EIS. This represented a revision and fine tuning of BES, and added to the income tax relief on subscriptions and CGT exemption the facility of a CGT deferral relief, which was available for chargeable gains reinvested in shares attracting the income tax relief. In 1998, when there was a major revision of EIS, this deferral relief became available whether or not income tax relief had been obtained on the new shares. In this way it effectively replaced a set of CGT provisions known as Reinvestment Relief (for which see CG62200), which was then abolished.

In 1995 the VCT scheme was introduced. This provided a range of reliefs for an individual investing in a VCT, which is a company investing its funds mainly in small unquoted trading companies.

Finally, in 2000 reliefs somewhat similar to those provided under the EIS were made available to companies through the CVS, which was introduced for a ten year period as part of an initiative to promote corporate venturing activity.