The Autumn Statement announcement that the sunset clause for Venture Capital Trusts (VCTs) would be extended to 2035 was a welcome boost for investors and financial planners. The news confirmed the continued availability of upfront income tax relief for investors in VCT-qualifying companies, giving added confidence to all that the VCT industry won’t be going anywhere any time soon.
The timing was particularly favourable given many clients will be looking to invest ahead of tax year-end. It therefore looks like another strong year for VCT inflows, which have topped £1 billion for two years running. And it’s clear why VCTs remain popular with investors, given the flexibility they offer. While the up to 30% upfront income tax relief VCTs offer is lower than the 40% pension relief higher rate taxpayers can claim on pension contributions, VCT shares need to be owned for a minimum of just five years to retain that tax relief. Clients can then sell their VCT, free of any Capital Gains Tax and reinvest them into another VCT after that period to claim a further round of tax relief.
And for those clients looking to supplement pension income, the fact that the dividends paid from a VCT are not taxed is another strong selling point. Add in that the dividend allowance is being halved from April 2024 to just £500, then the case for VCTs complementing other investments becomes all the more persuasive.
But it’s worth remembering what the VCT legislation was initially intended to do. These tax benefits are a way to incentivise investors – particularly high net worth investors – to put their money into young and growing UK businesses which would otherwise struggle to get the capital needed to fuel their growth ambitions.
So, do VCTs deliver that high growth that investors expect? On the whole, the answer is a resounding yes. According to recent Wealth Club research, nearly half (48.4%) of VCT investments are funding businesses that have grown their revenues by more than 25% year-on-year. This is almost twice the rate on the UK primary market where only a quarter of companies have seen revenues increase by 25% or more. Also, Wealth Club noted the average VCT had just over a quarter of its assets (26.4%) invested in businesses growing by more than 50%, while the UK main market has just 6.7%. In other words, VCTs are the place to look if your clients are keen to invest in companies on a dynamic growth journey.
But discovering and nurturing those dynamic growth companies is both art and science. For example, the Triple Point Venture VCT finds and backs companies at an earlier stage of their growth journey, usually at pre-seed or seed stages, because we believe this is where meaningful returns begin. It focuses on Business to Business (B2B) companies because, quite simply, they stand the best chance of being sold for a profit. As Wealth Club’s Nicholas Hyett noted when discussing the research: “Standout performers include… Triple Point VCT, which invests in the very youngest companies out there giving it the opportunity to participate in the fastest growth – albeit at a slightly higher level of risk.”
And because many start-ups fail, it’s essential to spread the risk by investing in a large number of portfolio companies. The Triple Point Venture VCT is currently invested in over companies, meaning the knock-on impact on investor returns from a single company failure is limited. The VCT isn’t constrained by focusing on any particular sector or industry, because B2B companies have the ability to transform or improve business models in all sorts of industries; it simply goes where the growth opportunities are.
It’s also important to have a healthy balance of portfolio companies at different stages of maturity. Because the Triple Point Venture team adds new companies to the portfolio each year, it has a good mix of businesses at various stages of their venture lifecycle.
Now that the VCT industry has received a show of support from the UK Government, there’s no reason why more clients shouldn’t consider VCTs as part of a well-diversified portfolio, providing them with the growth potential that other investment vehicles or asset classes may struggle to achieve. The high-growth potential of UK companies is there for all to see, and VCTs are a great way for more of your clients to participate.
For more information about the Triple Point Venture VCT, talk to your Business Development Manager, call 020 7201 8990 or visit vct.triplepoint.co.uk.
This article is an advertisement for the purposes of the Prospectus Regulation Rules and is not the prospectus. The Triple Point Venture VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status. Investors should only subscribe for shares on the basis of information contained in the Prospectus which is available via the Documents section of the website. This article has been approved by Triple Point Administration LLP, which is authorised and regulated by the Financial Conduct Authority.
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