VCT Interest Spikes as Experts Warn of More Restrictive 2017



Posted on: 7th February 2017

Is it worth considering venture capital trusts (VCT) as part of your retirement planning?

During the 2014 to 2015 financial year, VCTs raised a total of £429 million in new money – the fourth best annual performance the schemes have ever recorded. First brought into use in 1995, VCTs essentially allow investors to pool their money together with that of other investors, to be pumped into higher-risk businesses. The businesses are provided with an essential financial lifeline, while the investors benefit from significant tax breaks and the ability to spread their investments widely.

Speaking on behalf of Octopus Investments, Paul Latham of Octopus Investments said that more people than ever before are actively considering or signing up for VCTs. But does this mean that they are something you yourself should be considering?

Well, in terms of the benefits on offer, the most immediate is the way in which investors may qualify for 30% income tax relief on new share subscriptions, along with capital gains and dividends free of tax. What’s more, VCTs represent an attractive and accessible prospect for anyone that no longer has the option of paying money into their pension – either because they earn in excess of £150,000 per year or are close to breaching the £1 million lifetime allowance.

When these kinds of options are no longer on the table, investing in VCTs has the potential to deliver healthy returns and offer attractive tax advantages.

However, while there are more people than ever before actively looking into the idea, the availability of VCTs is beginning to taper off somewhat. New rules on the kinds of activities that are excluded and the fact that businesses must be younger than seven-years-old are reducing VCT opportunities for those interested in investing. It’s also no longer possible to invest more than £12 million in one company.

“An impact of all this in my view is that, next year, there will be a demand/supply mismatch,” says Hollands.

“We’re used to changes in this industry, and you can understand why the government wants to get value for money on every £1 of tax relief it’s given. In the past, there may well have been managers who tried to offer VCTs with lower risk profiles to investors. So investors would be getting the reliefs without taking the level of risk to match,” he added.

The value and viability of VCT opportunities can be determined only be considering the current financial situation and future goals of the investor in question. There are certainly opportunities to capitalise on, but they must be considered in accordance with all potential advantages and disadvantages under expert guidance. This is of course something that applies to all aspects of investing, saving and planning for retirement in general – the decisions you make today having a marked impact on tomorrow.

For more information on VCTs or anything to do with savings and investment opportunities, get in touch with the Haven IFA team today.