Current market conditions caused by the coronavirus crisis saw investors turn their backs on venture capital trusts (VCT) at the end of the tax year, with investment broker Wealth Club seeing a 67 per cent drop in sales in the final week compared with the previous year.
Alex Davies, founder and chief executive at Wealth Club, told FTAdviser unlike previous years when investors scrambled to put cash into VCTs ahead of the tax year deadline, this year there was no rush in sight, with the wider market seeing a 70.63 per cent drop in sales in the week compared with 2018/19.
According to the AIC, VCT sales figures hit £619m for the tax year 2019/20. This was down 15.3 per cent on the previous year.
Mr Davies said: “Unlike Isas, all the VCT managers typically shut for new business two days before the deadline. We were receiving applications up until 5pm on Friday (April 3) which was the final deadline, but far fewer than we would have expected under normal circumstances.”
Meanwhile, despite Octopus Investments seeing an uptick in VCT business in March, it was not as significant as it had been in previous years.
Paul Latham, managing director at Octopus Investments, told FTAdviser: “There was still a very noticeable uptick in March, but it wasn’t quite as significant as previous years, which is entirely expected given the current market conditions.
“Despite that, we’ve still seen strong demand from investors. All four of our VCTs reached their initial fundraise targets and there was actually very little difference in the average amount that people are investing.”
However Mr Davies said Wealth Club clients had not faced any disruption to services as the majority of business was already completed online.
He said: “As the only broker to offer online VCT applications (and the fact that 80 per cent of our business is done online anyway) our clients didn’t face any disruption in service levels.
“It has also been remarkably smooth for us, we are very lucky that technology is at the heart of our business and all our computer and phone systems work exactly the same way as if we were in the office.
“Each morning we have Zoom call with the entire team, and then just get on with it. That said, and I am sure I speak for a lot of people when I say, I can’t wait to be able to get back into the office.”
Similarly Octopus started to accept scanned copies of forms to make things easier for advisers during the lockdown.
Mr Latham said: “Half of our VCT applications are now online, which is up from 30 per cent last year, which clearly makes things a lot easier.
“To support advisers who prefer paper forms, we changed our onboarding requirements to allow scanned copies of forms, as we knew it would be hard for some advisers to meet with their clients.
“In one case we even had a member of staff go and pick up an application form from a VCT investor who lives nearby, as she was self-isolating and couldn’t make it to a post-box. All while following the social distancing guidelines, I should add.”
VCTs are investment companies that are listed on the London Stock Exchange and set up to invest in small or early stage UK businesses that meet certain criteria.
To encourage support for these businesses the government offers generous tax benefits, typically causing a rush to invest in late March.
Income tax relief is 30 per cent on a maximum investment of £200,000 per tax year when an investor buys shares in a new VCT share offer – but they need to have paid at least as much tax as the rebate and must hold the shares for at least five years.
Dividends from investments in VCTs do not attract income tax provided the original investment was made within the permitted maximum of £200,000 per year.
There is also no capital gains tax payable on gains from investments in VCTs and there is no minimum holding period for this rule to apply.
amy.austin@ft.com
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