VCT tax relief to drop, raising funding fears for start-ups

Investors have a limited window of just four weeks to capitalise on the generous 30% income tax relief available for Venture Capital Trusts (VCTs).

This current rate will be reduced to 20% starting on April 6th. Wealth Club, a leading investment platform, is strongly urging the government to reconsider this upcoming change, as it believes it could generate a significant funding shortfall of approximately £550 million for UK start-ups.

This reduction in tax relief could seriously jeopardise vital early-stage investments essential for fostering innovation and growth in the UK economy.

With the deadline approaching, investors interested in maximising their returns and supporting emerging businesses should act swiftly to take full advantage of the more favourable tax relief before the lower rate takes effect.

The implications of this policy shift could have far-reaching effects on the UK start-up landscape, making it crucial for potential investors to be aware of the impending changes and their potential impact on future funding opportunities.

Susannah Streeter, Chief Investment Strategist, Wealth Club said: “Time is running out for investors to benefit from tax incentives designed to help the flow of funding into UK start-ups. In four weeks, the income tax relief for investing in Venture Capital Trusts will reduce from 30% to 20%.

“Many investors will not be aware of this cliff edge and what a difference it could make to their money. The UK sorely needs to harness the innovations in start-up and scale up companies, to help boost growth, especially given the uncertainty facing the global economy right now.

“But the changes risk reducing vital funding flows for entrepreneurs. Right now, the tax break is worth up to £60,000 if you use the full £200,000 VCT allowance – and the dividends are tax-free. From the new tax year, the maximum saving falls to £40,000 on the same investment. Investors shouldn’t leave it too late. VCTs have limited capacity and many sell out as the tax year end approaches. Most also close ahead of 5 April, so you can’t make a last-minute investment at midnight like you can with an ISA. Anyone hoping to maximise their tax relief and secure the best offers should act sooner rather than later.

“Wealth Club’s preferred VCTs for the end of the tax year include the Gresham House VCTs, the Pembroke VCT and the Octopus Apollo VCT.”