During a roundtable event today (13 January), Tilney Bestinvest’s managing director for business development Jason Hollands said fundraising into VCTs has been “cryogenically suspended”, as managers work to understand the detail of the legislation.
He warned VCT investors are going to have to act earlier than usual this year, due to the smaller amounts of money looking to be raised.
“There is no certainty that the full choice of schemes will be available. These are limited offers, and once a VCT has reached its target then you have missed it. It is first come, first served.
“Until the last couple of months, there has been very little fundraising,” Mr Hollands said, adding that VCTs typically have started fundraising from September in the past.
He also said a number of VCTs have held back from completing transactions as they wait for more clarity.
Any adviser worth their salt should tell clients not to be dazzled by tax reliefs alone unless the underlying investments make sense.In the Summer Budget, chancellor George Osborne announced that for companies to be eligible for VCT funding, they must have started trading in the past seven years, or 10 years for a ‘knowledge intensive’ company.
Changes to the Finance Act will also mean there is a £12m cap – or £20m for a knowledge intensive company – on the amount VCT companies can receive.
However, according to Mr Hollands, the biggest change to the industry is that VCT money can no longer be used to fund management buyouts and acquisitions.
Paul Latham, managing director of Octopus Investments, said there have been some indications that the government will negotiate on this change with the European Commission in order to get it relaxed.
He also pointed out that the EU has been the main driver behind the VCT changes, rather than the UK government.
Both Mr Latham and Mr Hollands denied investors are likely to be put off by the changes, because the tax benefits from VCTs have remained the same.
“Any adviser worth their salt should tell clients not to be dazzled by tax reliefs alone, unless the underlying investments make sense,” Mr Hollands said, adding that the changes “are not the end of the world”, but some fund managers have decided not to raise much money this year.
“Fund managers are pulling back from raising value because they want to make sure they can find the right opportunities that fit the new criteria.
“This is an industry that is really mindful of raising more money than it can invest,” he said, adding that more modest amounts have been raised this year compared to the previous year.
In fact, VCT providers expect to raise £350m during this tax year, compared to around £430m in the previous year, according to a recent Tilney Bestinvest survey.
“The headache is more with the managers and how they have structured deals. It is a small industry but full of bright people that will navigate through the changes,” Mr Hollands commented, although he noted that business picked up in the first week of January, following an “incredibly quiet” six month period.
katherine.denham@ft.com
