AIC figures released today show the amount invested in Venture Capital Trusts (VCTs) once again hit more than a £1 billion. The total – including dividend reinvestment – was £1.08 billion, the second highest on record.
Commenting on this year’s figures Alex Davies, founder and CEO of Wealth Club, the largest VCTs broker said, “Despite the economic uncertainty and a slower start, this marks yet another extraordinary year for Venture Capital Trusts.
It’s easy to see why VCTs remain attractive. If you are a wealthier investor, you’re caught between higher taxes on one hand and restrictions on where you can invest on the other.
Taxes are at a 70-year high and traditional investments like pensions and buy-to-let have been squeezed. Venture Capital Trusts stand out. They’re simple and highly tax efficient for a start. But it’s not just about saving tax, VCTs are also exciting: you’re backing some of Britain’s youngest and brightest companies and, probably adding something completely different to your portfolio.
Of course, all of this is great news for the British economy: young businesses create a disproportionate amount of jobs and economic growth.”
What is the outlook for VCTs?
“2023/24 is going to be a brutal year for UK taxpayers. 232,000 more people will be paying the top rate of tax. Meanwhile both the dividend and capital gains tax allowances are being slashed. For many wealthier people it will feel like a return to the 1970s. VCTs therefore will remain very popular.”
What about the pension allowance? Will that dampen demand for Venture Capital Trusts?
“Whilst the lifetime allowance changes are good news for those saving into a pension, we believe they will have limited impact on demand for VCTs. Most of the people who invest in VCTs are either retired or very high earners – what they can put in a pension will still be restricted.
For instance, most retired people can only invest up to £3,600 a year into a pension whilst higher earners will be restricted to investing as little as £10,000 a year. It’s also worth bearing in mind that although the lifetime allowance has been officially removed, the tax-free lump sum remains capped at £268,275 – meaning for many the de-facto lifetime allowance remains unchanged. Once you’ve reached £1,073,100, which entitles you to £268,275 in tax-free cash, why would you invest any more if all the excess benefits will be taxable at your highest marginal rate when you take it out?
It’s still worth looking at VCTs instead.”
Tax year in numbers
- Fastest: Unicorn AIM VCT – small raise of £15m – sold out in 1 day
Biggest VCT raises
- Octopus Titan VCT: £237m, a new record for a VCT offer (previous: £231m, also Octopus Titan in 2018/19)
- Next three: Albion VCTs £80m, Mobeus VCTs £76m, British Smaller Companies £75m
- 7 VCT offers raised >=£50m for second year in a row
- Average age of Wealth Club VCT investors is 58
- oldest investor is 102, the youngest is 20
- biggest age group is 46-55 (by amount) or 56-65 (by number of individuals)…
- % men and women
- By number:
- 81% male /19% female
- By amount invested
85% male, 15% female,
- 172 clients (4% of total) put the full £200,000 allowance
- Average amount invested in 2022/23 tax year per Wealth Club client per VCT: £12,560
- According to figures from YFM, VCTs deployed £700m of investments into the UK’s small fast-growing businesses in 2022, which included a YoY increase of more than 20% in unquoted investments