Time to act now on VCTs

Uncertainty around the continuation of UK tax reliefs for Venture Capital Trusts has driven several funds to announce large fundraises early this year.

Facebooktwittergoogle_pluslinkedinmailFacebooktwittergoogle_pluslinkedinmail   by Sophie Kennedy (née Muller), 14th September 2017

Why September is the new December

Over the last few weeks, I’ve been meeting a number of Venture Capital Trust (VCT) managers to discuss their fundraising plans and expectations for investment in the near term. It is unusual to be meeting with them in the summer months, normally I’d have a coat and scarf on!

One key theme throughout these meetings has been uncertainty – an emotion VCT managers have become accustomed to. In recent years, HM Treasury has tweaked investment rules in an attempt to ensure these venture funds are being used as they were designed – to promote funding for small and medium sized UK companies that would otherwise struggle to raise capital in the market.

The latest bout of uncertainty can be attributed to HM Treasury’s ‘Patient Capital Review’. This consultation is looking in detail at the availability of long term finance for growing innovative firms in the UK, and reviewing international best practices to inform recommendations for UK government policy. The findings are due to published in the Autumn Budget, and several of the VCT managers I’ve spoken to are concerned about the consequences, such as more restrictions on the investments they are allowed to make, or a reduction in the available tax reliefs .

What does this mean for investors?

Venture Capital Trusts are raising funds early this tax year, ahead of the Autumn Budget in November. Many will make their first allotments prior to this date, and we suspect many offers will fill up quickly. Therefore we would advise investors to act now, with the majority of offers likely to be available by late September or early October.

You can view current offers open for investment – including our Top Picks – right here on the EQ website. We conduct a detailed review of each VCT, including meeting with the management team, analysing their track record and understanding their investment strategy. You can also download our free guide to VCTs, which should be considered essential reading if you are not altogether familiar with their risks and benefits.

Why consider VCTs?

You may be interested in VCTs if you have fully utilised your ISA and pension allowances, are willing to take on a higher degree of risk and have a medium to long-term time horizon. VCTs are tax efficient investment vehicles made available by the UK Government to promote funding for small and medium-sized companies. VCTs offer a range of attractive tax incentives, including 30% income tax relief and tax-free dividends.

Important Information

The information set out above is included for information purposes only and is not an offer or an invitation to buy or sell or a solicitation of an offer or invitation to buy or sell or enter into any agreement with respect to any security, product, service or investment. Any opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. All information is current as of the date of publication, subject to change without notice, and may become outdated over time. Links to third party sites or pages are for information purposes only and such sites and pages are not part of this website or the responsibility of EQ Investors Limited and have not have been reviewed or verified by EQ Investors Limited. Following links to or from any other sites or pages shall be at your own risk. Please note that tax rates and bases can change without notice.

VCTs should be considered to be high risk investments suitable only for experienced investors who can afford to incur losses.

About the author: Sophie Kennedy (née Muller)

Sophie is responsible for the research agenda across EQ, leading a six-strong team that covers open and closed-ended funds, as well as tax-efficient investments including VCTs and EIS’. Sophie is a CFA charter holder.

Outside work, Sophie is a keen footballer, captaining Leyton Orient Ladies in the London & South East Womens Premier League. When not playing, Sophie is pitch side at the Emirates Stadium, watching her beloved Arsenal. Off season, her other passions include travelling, cricket and running, with two London Marathons under her belt.

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