Attracting younger clients to VCTs

This article is part of
Guide to VCT investing

Attracting younger clients to VCTs

Venture capital trust (VCT) investors used to be very much part of the 50-plus landscape: people preparing for their retirement by making the most of their tax allowances.

But as more people are becoming aware of the need to start saving as soon as possible to secure a decent financial future for themselves, is the average age of VCT investors coming down?

For some, it seems to be, although it's not easy to quantify. George Bull, senior tax manager for RSM UK, comments: "The trend seems to be towards younger investors, although I can find no definitive information on this."

He cites a report for the then Inland Revenue back in April 2003, called Research into the Enterprise Investment Scheme and VCTs. This indicated that at the time:

  • 20 per cent of VCT investors were 40 to 49 years old.
  • 29 per cent were between 50 and 59.
  • 45 per cent were 60 and over.

However, anecdotally, he acknowledges since then the average age of VCT investors seem to be falling. 

This is certainly the case for Alex Davies, chief executive of Wealth Club, who says his firm's youngest VCT client is 23 years old. "Looking at the wider demographic, 14 per cent of our clients investing in VCTs are under 40, while 31 per cent are under 50," he confirms.

Similar figures are cited by Stuart Veale, managing partner at Beringea: "We don't collate data on the mean or median age of investors but the age range is broad.

"In the last major share offer by ProVen VCT, the youngest investor was 22 and the oldest was 95."

The tax factor 

"The key factor in this is that if you are what can be described as remotely wealthy, then one by one, pretty much every simple and tax-efficient way of saving previously available to you has been made less attractive," says Mr Davies.

Pension taxation changes have also made people look further afield for tax-efficient investment options - especially those seeking yield. The Association of Investment Companies (AIC) states the average yield on a VCT is 6.7 per cent - far higher than the yield on the FTSE 100 or the FTSE All-Share, and certainly higher than cash or sovereign bonds. 

Jack Rose, head of tax-efficient investment at LGBR Capital, says: "Changes to pension taxation has broadened the investor base for VCTs - it has meant people are considering VCTs at an earlier stage than they might previously have done."

But beyond pensions, there has been a fast erosion of tax-efficient investment schemes in the UK.

One only has to think of the film schemes which 15 years ago seemed so popular and a great way to mitigate one's tax bill, and now are not only being cracked down on hard by HM Revenue and Customs (HMRC), but also landing people with big fines to pay to HMRC.

Such schemes were popular not just with actors, comedians and footballers but also those who were working within the financial services sector, showing that even sophisticated investors and their advisers can make mistakes.