Venture Capital Trust funding has jumped by more than a third in the past year, boosted by Chancellor Philip Hammond’s changes to the sector in the 2017 Budget, new figures show.
The Association of Investment Companies says the amount raised by the sector went up 34 per cent to £728m in the 2017/18 tax year – the second highest figure since 2006.
It is also the highest amount ever raised at the current level of 30 per cent upfront tax relief.
VCT assets under management at 5 April 2018 were £4.3bn, up from £3.9bn the previous year.
AIC chief executive Ian Sayers attributes the rise in funding to pension rule changes and support from the government in last year’s Budget.
He says: “This year’s bumper fundraising has been boosted by the government’s recognition of VCTs as effective providers of patient capital in the November 2017 Budget, as well as the pension rule changes and VCTs’ strong long-term growth and income record.
“VCT fundraising is vital to UK smaller companies, as they will benefit from the VCT investment and expertise they need to grow. VCT-backed businesses deliver vital economic benefits, with jobs more than doubling after VCT investment.”
The Chancellor announced in the 2017 Budget that funding which a qualifying company may attract under a VCT as well as an Enterprise Investment Scheme will rise from £5m to £10m.
A new ‘risk to capital condition’ was also introduced to the EIS and VCT legislation to close the door on investment in low risk schemes, with the aim of helping genuinely entrepreneurial companies grow and develop.
The Chancellor also doubled the EIS annual investment allowance that qualifies for tax relief to £2m.
Sayers adds: “I am confident that VCTs will continue to be a vehicle delivering transformational change for some of the UK’s fastest growing businesses.”
Wealth Club founder and chief executive Alex Davies believes that as a result of reductions in high-end pension tax relief, VCT investment will continue to grow.
“The amount you can put into a pension if you are a higher earner has significantly fallen. Pension rule changes mean people need other places to put their money.
“The maximum amount you can hold in a pension over your lifetime is £1.03m. While this figure sounds high, there are a lot of people who can’t actually put any more into a pension and are looking to VCTs as an alternative.”
Davies says that after the government showed it was behind VCTs in the last budget, they are now very much a part of the investment landscape.
He adds: “People are waking up to the fact that the performance of VCTs has been very good, especially over the last 10 years.”