Now is a good time for investors to add Venture Capital Trusts (VCTs) to an investment portfolio.
They are a tax-efficient way to support British businesses, with a 25-year track record of delivering robust, resilient returns. According to experts they could raise a record £1bn before the end of the current tax year, with over £800m has been invested in VCTs already this financial year. This is an all-time record.
Why is Demand for VCTs so Strong?
There are a number of reasons.
Firstly, the more wealthy are looking for more tax efficient ways to invest. VCTs can offer a 30% income tax relief on an allowance of up to £200,000 per year.
In April dividend taxes are due to increase by 1.25 per cent which will hit investments, outside of a pension or ISA. VCT returns, which are paid through dividends, are tax free.
While the inherent risks of investing in VCTs must be acknowledged, their access to researched, managed, and diversified portfolios of early-stage companies make them an attractive option for many investors.
Providing essential support for the growth businesses that they support is an important feature of VCTs. They include some of the UK’s most exciting small and medium-sized enterprises, which account for 61 per cent of employment and 52 per cent of turnover in the private sector. By sustaining this sector will have a huge impact on the vitality of the economy as a whole.
In our previous blog, ‘VCTs – Will they stay on top’ we discussed some of the trends that VCTs have shown over the last 25 years. One striking statistic is the amount that VCTs have raised, over £9bn, for funding SME growth, supporting hundreds of companies and creating thousands of jobs.
Accommodating Investor Interests
VCTs can accommodate the priorities of many investors, such as an interest in sustainability. One industry expert recently said that VCTs are well placed to contribute to the green industrial revolution as they back pioneering new companies, many of which want to help improve the outcomes for our planet and its future.
The economic impetus will be particularly important for the UK as global macroeconomic and geopolitical events continue to unfold. When recovery comes, it will most likely be driven by the young growth businesses that VCTs and their investors have supported.
With the inflation rate hitting a 30-year high of 5.5 per cent in January, and further increases expected by April, investors may appreciate VCTs’ record of yielding robust, resilient returns.
With that in mind, building VCTs into a portfolio could be one of the best decisions that investors can make this tax year.
You can see some of the VCTs showing the types of investments that BulbFin Advisers can provide guidance on here.