‘Squeezed middle’ look to VCTs

The managing director of provider YFM Equity Partners said that confidence among investors and among smaller companies in going down the VCT route has been driven largely by two factors: demand for equities and more management buy-outs.

He said: “People are more confident, banks are lending more for certain deals and more managers are pushing for buy-outs from the previous founder or manager.

“This has meant there is a good supply of deals, with fairly stable pricing. On the other hand, we are seeing investors hunting for yield and, as the VCT market comes of age with more maturity, we have seen that there are more products on the market, with good track records, and more competition.

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“This has helped to improve confidence among investors looking for a good equity investment that will provide them with some tax-efficient income.”

Mr Hall, whose company is issuing a £30m top up for its Smaller Companies 1 and 2 VCTs, which will be available for subscription from 14 January, said even the onslaught of RDR last year, which saw some wealth managers who advise on VCTs put up their fees, could not offset the strong returns from the sector which more than compensated for some higher advisory fees.

He added: “Wealth managers have found that 2013 was the year when the pension cap of £1.25m finally started to hit clients, as it was the first year they could not do the carry back.

“So the squeezed middle, those earners aged between 35 to 55 are finding they may have the worst retirement outcome unless they take action.”

With the pressures on people saving for retirement, he said more investors are retaining and reinvesting their dividends, compared to five or six years ago.

Adviser view

Richard Troue, head of VCT research for Bristol-based Hargreaves Lansdown, said: “The 2012/13 tax year was a good one for VCT fundraising on the whole and so far, 2013/14 is shaping up well, as evidenced by NVM raising the full £50m it was seeking in a short space of time and before the VCT fundraising season hits its busy period. The cap on pensions savings is certainly likely to be one reason. From April 2014, the maximum savers can contribute each year to a pension is being cut to £40,000 from £50,000, with the maximum that can be accumulated over a lifetime cut to £1.25m from £1.5m. Secondly, interest rates are likely to remain low throughout 2014.”