£568 million has been invested into Venture Capital Trusts (VCTs) so far this tax year.
This represents a 4.3% rise year-on-year (£545m) and 16% more than 2023/24 (£491m).
VCT tax relief is reducing from 30% to 20% in the next tax year, which means investors are racing to get into offers before the deadline.
Since the Budget, this year has seen £310m of VCT subscriptions – 37% higher than average of the same period in last five tax years.
British companies that have raised money through VCTs in the last year, include global employee screening tool Veremark, alcohol-free brewer Lucky Saint, London’s lunchtime food sensation Farmer J, and NuQuantum, which is building the networking hardware for quantum computing.
Susannah Streeter, Chief Investment Strategist, Wealth Club
‘’There’s been a surge in investment in Venture Capital Trusts as the end of the tax year looms and investors make the most of the incentives currently on offer.
VCTs are stock market listed funds which invest specifically in young, usually private, businesses looking to fund growth. It’s an exciting opportunity to provide the financial fuel for promising firms while saving tax at the same time.
These government schemes are aimed at supporting growth across the UK economy and investors are ploughing over 4% more money in compared to last year, and 16% more than in 2023/24. The upswing may be partly due to the changes to tax incentives coming down the line. In the new tax year, relief is reducing from 30% to 20%, so investors have been piling into the offers before the deadline. Since the Budget, this year has seen £310m of VCT subscriptions – 37% more than average for the same period in the last five tax years.
With taxes at a 70-year high, it’s understandable why VCTs are so attractive to investors right now. The big cuts in CGT and dividends’ tax-free allowances in recent years are eating into other investments. For those who have already maximised their pension and ISA allowances, VCTs are the obvious next step. Unlike pensions and ISAs, the allowance is extremely generous and simple. You can invest up to £200,000 a tax year into a VCT, getting up to £60,000 in tax relief, although you must hold the VCT for at least five years.
For anyone who is passionate about investing in growth, VCTs are an attractive tax-efficient proposition. The more money that goes into fast-growing startups, the more jobs they create and the more economic prosperity for the country as a whole.
A single VCT can give you exposure to a portfolio of 30 -100 businesses, offering diversification under one roof. Most returns come through dividends which are tax free, as is any growth.
Companies that have raised money through VCTs in the last year include global employee screening tool Veremark, alcohol-free brewer Lucky Saint, London’s lunchtime food sensation Farmer J, and NuQuantum, which is building the networking hardware for quantum computing.
Successful VCT exits include Interactive Investor, Pasta Evangelists and jeweller Monica Vinader, demonstrating how investors can capitalise on successful British based enterprises.
Those looking to invest in VCTs and get the maximum tax relief before it is reduced in April should consider acting now. VCTs are limited by capacity and many of the best ones sell out way ahead of the tax year end.
Three VCTs to consider
Gresham House VCTs, formerly known as the Mobeus VCTs, only recently launched their £95 million offer. These have a great long-term track record and are perennially popular with investors. It is worth hurrying to access these VCTs as they have a habit of selling out quickly.
Octopus Apollo VCT is a good option to consider in the run-up to the tax year end. It may not invest in the most exciting growth companies but instead backs B2B software companies with established business models that typically generate revenues of between £2 million – £8 million per annum at the point of investment. It has performed well over the last five years, a period when many of its peers have struggled.
If you are looking for a trust focused on companies raising money on the UK’s junior stock market, the Unicorn AIM VCT is worth considering. Even though AIM VCTs have fallen out of fashion, Unicorn is the best of the bunch and is one to bear in mind given its track record.
