Friday HighlightOct 14 2022

VCT sunset clause extension a good move by former chancellor

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VCT sunset clause extension a good move by former chancellor
The now former chancellor's extension of the tax relief scheme will help maintain the positive momentum VCTs have built up. (TOLGA AKMEN/EPA-EFE/Shutterstock)

This move by the government ensures that VCTs will continue to operate as the most efficient investment vehicle for delivering investors an efficient and competitive income stream. VCTs can provide an upfront tax relief worth 30 per cent of the amount invested, up to an investment of £200,000, allowing investors to earn tax-free dividends and capital gains. 

Considering that 72 per cent of VCT investors cited tax breaks as their main reason for investment, these tax-free dividends could become an increasingly key component of an investor's portfolio in the months ahead. 

Investing in innovation 

Other than the crucial tax relief advantages that will help investors in the difficult months to come, VCTs also provide the opportunity to support and capitalise on some of the UK’s most innovative companies.

VCT investments offer start-ups and SMEs access to the fast and flexible funding they need to compete during the early stages of their lifecycle. This vital injection of capital can then be deployed to prioritise research and development and allow these businesses to realise their potential and shape their respective industries. 

In the face of changes affecting pensions, VCTs continue to offer investors a very attractive supplementary pension planning option. 

For investors to truly capitalise on the benefits of investing in these businesses, VCTs have adopted a variety of strategies capable of identifying start-ups and SMEs that have the potential to survive and thrive in an increasingly competitive marketplace. 

For example, Triple Point’s Venture Fund VCT uses a challenge-led approach that identifies the UK’s most dynamic pre-Series A B2B technology businesses.

With high-growth B2B technology businesses accounting for more than 75 per cent of all exits in 2019, the sector can offer the opportunity for attractive returns for investors. 

Supporting the UK on the road to recovery 

Supporting these technology start-ups, and the wider SME sector, will be a vital component in the scaling up of the UK’s economy. With fears of a future recession looming over the financial sector, the VCT announcement is a silver lining in the storm whipped up by Kwarteng's speech.

In the face of changes affecting the pensions space in the UK, including the tapered annual allowance and the closing up of lifetime limits, VCTs continue to offer investors a very attractive supplementary pension planning option. 

Encouraging investors to incorporate VCTs into their portfolio could be one of the best decisions the now former made.

Their record of providing robust and resilient returns will push more investors towards the sector in the aftermath of Kwarteng's announcement.

Continued clarity around the future of VCTs will allow the market to continue to flourish and accelerate VCTs’ move towards a mainstream asset class and an essential in any adviser's arsenal.