Investors over the last year ploughed the most money into venture capital trusts (VCTs) in more than a decade, according to new data from HM Revenue & Customs (HMRC).
The listed private equity-style investment funds, which give their investors tax relief on any money committed and tax-free returns, have seen increased interest from wealthy individuals in a year when the amount which can be saved in pension funds has been cut.
A total of £570m was raked in by VCTs in 2016/17, 28 per cent more than the year before and the highest amount since 2005/06.
“[It is] hardly surprising, given tougher annual allowances and lifetime limits on pensions, that more investors are looking at VCTs,” said Hargreaves Lansdown‘s Mark Dampier.
However, there are some fears as to what November’s Budget will bring for VCTs.
Andrew Snowdon, a partner at accountancy group UHY Hacker Young, said: “We know that the chancellor is currently engaged in an ongoing review of capital markets, looking at whether various tax reliefs are well targeted and deliver value for money. However, he should remember what an important industry VCTs are.”
Investors currently receive a 30 per cent up-front tax break if they hold VCT shares for five years. But UHY thinks the government could also change the types of assets which VCTs can invest in.
This would follow a raft of reforms introduced in 2015, which prevented VCTs from backing buyout deals and ensured they funded young, small companies.
“I would encourage investors planning to use VCTs to invest now ahead of the fast approaching November Budget, which could see changes to the tax relief they provide,” said Alex Davies of Wealth Club, a business which provides research on investment opportunities.
“There has arguably never been a better time for investors to consider VCTs, and there are compelling reasons for investors to act now rather than wait until after the Budget when the rules may well change.”