Investors willing to put money in riskier start-up schemes received some good news in the Budget – but experts said the changes did not go far enough.

People who put money into an enterprise investment scheme (EIS) – a direct investment into an unquoted company – are now allowed to “carry back” their entire investment to the previous tax year.

Previously investors could only carry back the 20 per cent tax relief allowed on EIS investments up to a limited amount of £50,000. Now, they can claim relief on up to £500,000.

The changes could benefit people earning nothing in the current tax year – for example those who have retired or are not taking an income from their business, according to Paula Higgleton, a tax partner at Deloitte.

EIS companies, along with venture capital trusts, will also be given more time to invest the money they get from investors – an extension to two years from the previous 12 months.

But Martin Churchill, editor of the Tax Efficient Review, said the changes were “virtually meaningless” for retail investors with smaller sums to invest.

EISs have attracted more interest from investors in the past year following the change in capital gains tax from 40 per cent to 18 per cent, as investors were able to use an EIS to claw back tax paid at the higher rate.

But Mr Churchill said an increase in tax relief would have attracted more investors to the sector.

“They will survive but they will be of less interest to investors than they otherwise might have been,” he predicted.”

Venture capital trusts (VCTs) had already been hit hard by changes made in the 2006 Budget, which saw the income tax relief on investments slashed to 30 per cent from a previous 40 per cent. They were also restricted in the size of companies they could invest in, down from £15m to £7m.

VCTs differ from EISs as they are listed companies and invest in other unquoted or Aim-listed companies.

Accountants and investment advisers had hoped that tax relief on both VCTs and EISs might be raised in yesterday’s Budget, especially given the economic climate which has seen smaller businesses struggle to get funding.

Matthew Woodbridge at Chelsea Financial Services said that the lack of any significant changes to EISs and VCTs – such as increasing the number of employees a company has to have to qualify for investment – was a “missed opportunity”.

However, he said that the tax year of 2008/09 would probably turn out to be a vintage year for investors in VCTs, as managers are now able to cherry pick the best of the small companies currently desperate for funding.

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