The Treasury has published 'Financing growth in innovative firms: consultation response', a summary of responses to its patient capital consultation this summer. Respondents recommend more incentives to encourage patient capital investment, including removing connected party rules to encourage individuals to invest in their own enterprises.

The UK defines patient capital as long-term investment in innovative firms led by ambitious entrepreneurs who want to build large-scale businesses.

Responses to the consultation, 'Financing growth in innovative firms' were provided by an industry panel comprising entrepreneurs, academics and investment professionals, who found that: 

  • The UK entrepreneurial ecosystem provides significant financial support at the earliest stages of starting a business. However, our scale-up performance is not as strong, and continues to lag behind the US.
    • In recent years, successful government policy interventions such as the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) have helped develop a thriving start-up community.
    • Opportunities remain for improvement, particularly with respect to the transformational development of some of these start-ups into large-scale businesses; many UK-based businesses are unable to reach their full potential and either remain “stuck” in a mode of incremental growth, or accept a trade sale as the most convenient exit, both of which are ultimately to the detriment of the UK economy, tax receipts and job creation.
  • The lack of patient capital is a significant impediment to UK entrepreneurs’ success.
    • The lack of capital availability forms one part of a ‘negative feedback loop’, together with historically low returns for venture investments, and the low attractiveness of the UK market to top talent. This loop has historically suppressed scale-up opportunities.

The Panel’s vision is that every great entrepreneurial management team will be able to obtain the finance it needs in the UK to develop their ideas into major global businesses. They propose three initiatives to make a substantial impact on the problem, to be implemented together rather than one leading the way:

  • Creating a Patient Capital Investment Vehicle (PCIV)
  • Creating a UK “Patient Capital Investment Company” (PCIC) programme
  • Extending the investment limits for existing EIS and VCT schemes

Patient Capital Investment Vehicle (PCIV)

The PCIV would enable the aggregation and deployment of both retail and institutional capital for investment in UK scaleup businesses and capital-intensive R&D-based businesses. This proposal targets the lack of capital availability, particularly above the current EIS and VCT thresholds.

Patient Capital Investment Company” (PCIC) programme

UK PCICs would be private (VC) funds licensed by the British Business Bank (BBB) to raise funds from commercial lenders through a BBB guaranteed debenture, alongside equity capital. This proposal targets the historically low returns for venture investments.

EIS and VCT schemes

Although other tax incentives such as Business Property Relief and Entrepreneurs Relief are considered helpful to the ecosystem the Panel believes EIS and VCT are the most important tax “levers” to be addressed. 

The panel found that the strict limits on investment size for these schemes create inefficiencies as businesses transition away from tax incentivised investment, particularly due to the inability of Angels and VCTs to provide follow-on funding. To minimise this impact, they recommend:

  • That the limits be extended or removed, smoothing the transition from EIS / VCT funding to venture. Current investment limits are £1m for EIS and £200k for VCT.
  • That changes focus on Knowledge Intensive Companies (KICs
  • A new “Growth EIS or VCT” with a reduced level of tax saving.
  • Removing the Connected Party rule to reduce the barriers to entrepreneurs re-investing in their businesses.

The need to focus on KICs has already been addressed in the 2017 Autumn budget; from 6 April 2018:

  • The EIS individual investment limits in KICs is doubled, to £2m.
  • The amount of tax-advantaged investments a KIC may receive is increased to £10 million.

Our useful guides for Entrepreneurs and investors:

Which investment relief? IR v. ER v. SEIS v. EIS

Which CGT relief: disposal of a business or its assets

Business Investment Relief for non-domiciled individuals

Research and Development Tax reliefs: introduction  

External links

Financing growth in innovative firms: consultation response

Financing growth in innovative firms: consultation



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