High barriers to entry and limitations from the rule changes have hampered prospects for new VCT launches, as have the fact that many investors would rather put their money into more established companies or funds, says Lauren Radford, head of business management for tax-advantaged investments at Allenbridge.
“Unfortunately, there are significant headwinds and a competitive disadvantage for new VCTs coming to market. Even raising new funds for existing VCTs is hampered by the current rules and restrictions,” Ms Radford notes.
Since companies that are eligible for VCT and EIS inclusion are in the early stages of development, they often offer significant potential for growth.
Ryan Hughes, head of fund selection at AJ Bell, notes the vehicles can come in a variety of forms, but most tend to have the underlying theme of rapid advancement.
“We see a wide variety of different investment strategies ranging from restaurants, healthcare, fitness and media. All of the focus is on high-growth sectors that reflect the changing attitudes of UK consumers.”
Ms Radford says VCT rules have resulted in a focus on venture and growth investments in newer and smaller companies, with a significant focus on technology and consumer brand businesses, along with public houses, hospitality and infrastructure.
VCTs are meant to be long-term holdings, so that shareholders can benefit from the growth of these early stage companies over time as well as hold on to the tax advantages they offer. This means underlying assets will remain fairly consistent over the years.
“Most VCTs will still retain their existing investments, so on aggregate, the majority of holdings would not look vastly different from last year,” Ms Radford explains.
Growth and development
The climate is similar in the EIS space, with a focus on growth and development in the underlying companies. Adam Spence, partner at Edition Capital, says that adviser focus has shifted “towards EIS qualifying opportunities that can deliver greater levels of growth in line with the spirit of the EIS legislation”.
The First Edition EIS invests in live entertainment and media, while others are investing in a range of activities from public houses and recycling of organic waste. Some even invest in more esoteric underlying businesses such as showjumping horses, microbreweries and classic cars.
Keeping up with demand
All of the recent attention being paid to VCTs and EIS has many wondering if more could come to market, and if providers will be able to reposition the vehicles as year-round products instead of just a consideration for the final few months of the tax year.
Mr Spence is confident that new offerings will be launched to keep up with growing demand for tax-efficient investment vehicles.
