The amount invested in venture capital trusts reached its highest level in more than a decade this year, according to the latest official data
Figures from HM Revenue & Customs, out today (December 10), showed investors piled £716m into VCTs during the 2018/19 tax year, up from £705m last year.
The data showed the amount invested had jumped 65 per cent from the £435m invested five years ago.
There has also been a notable uptick in the number of investors opting to put funds into a VCT as 18,890 investors claimed income tax relief for the tax year 2017/18 (the latest figures available), an increase of 24 per cent from the previous tax year.
VCTs are like investment trusts but only invest in small, young and typically unlisted companies. Although such companies are riskier and statistically more likely to go bust, investing in a VCT comes with a 30 per cent income tax relief from the government and any returns are tax free.
The trusts have performed well in recent years — the top 16 VCTs have all at least doubled investors’ money on a net asset value return basis over the last 10 years while 2018 saw the second biggest VCT season on record, according to data from the AIC.
Tim Holmes, managing director of Salisbury House Wealth, put the increase in assets flowing into VCTs down to high-net worth consumers searching for tax efficient investment routes.
He said: “HNWs have had the amount they can contribute to their pensions cut, so VCTs are being looked at more closely.
“VCTs enable them to recycle what they would have contributed to their pension into a fund that offers 30 per cent income tax relief.”
Alex Davies, founder of Wealth Club, agreed. He thought it was “hardly surprising” VCTs were becoming increasingly mainstream due to tax relief restrictions on pensions.
Mr Davies’ top pick for 2019/20 was the £825m Octopus Titan VCT as it has a “track record of spotting rising stars” and achieving high-profile exits. It has delivered a net asset value total return of 101 per cent over the past 10 years.
His other top picks included the four Mobeus VCTs, which have delivered between 102 and 184 per cent over the last 10 years, and Albion’s five counterparts.
Albion’s VCTs — which Mr Davies said offered “something for everyone” — had returns ranging from 86.5 per cent to 111 per cent over the last decade.
imogen.tew@ft.com
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