Venture trust plan 'doomed to fail'

ERNST & Young, the accountancy and consulting firm, has criticised Venture Capital Trusts, the scheme floated by the Government in the last Budget to encourage investment in unquoted companies, as doomed to fail.

Legislation based on the outcome of government consultations will be introduced in this year's budget. But according to Chris Attwood, senior tax partner at Ernst & Young, the trusts - meant to attract funding for small and new businesses - cannot survive in their current form.

Mr Attwood said the proposed rules governing the trusts are too inflexible and the time scales too tight.

'Taxpayers are unlikely to invest in Venture Capital Trusts as currently proposed. Although the proposals provide limited tax relief for investors, they do not compensate for the risks involved,' he added.

Four fifths of qualifying Venture Capital Trusts' assets must be in unlisted trading companies. Investors are expected to be exempt from tax on dividends and on capital gains arising on the sale of their investment.

Ernst & Young said investors should also be given relief for losses on VCTs and on the initial investment.

The firm also recommended an increase in the scheme's investment ceiling and said gains tax should qualify for rollover relief if proceeds were reinvested.