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89% of wealth managers back VCTs in current investment climate

by | Mar 7, 2023

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As the end of the tax year approaches, new independent research by YFM Equity Partners (YFM) reveals that an overwhelming majority (89%) of independent financial advisers (IFAs) and wealth managers believe that Venture Capital Trusts (VCTs) present an attractive option in current market conditions.

The most popular reason wealth managers are recommending VCTs to clients ahead of the tax year end – cited by 61% of advisers – is to benefit from receiving 100% tax-free dividends.  Around a third (32%) cited the 30% upfront income tax relief on investments up to £200,000 per tax year.

According to the study, which was conducted among 100 of the UK’s leading IFAs and wealth managers, 89% believe VCTs are particularly suitable for today’s environment because of their proven ability to produce higher investment returns by backing early-stage businesses during an economic downturn, which leaves more scope to benefit from the eventual turn in the cycle.

Almost half (44%) of respondents recommend VCTs because they provide a vital source of capital and access to some of the UK’s small, yet most exciting and fast-growing companies at a time when traditional finance is more constrained.  

 
 

When discussing the benefits of VCTs with clients, well over three quarters (82%) of wealth managers and IFAs said their role in backing early-stage British businesses was either a key decision criterion or very important. 

A key driver behind the popularity of VCTs this tax year is the continued high levels of market volatility. According to the research, 89% of those surveyed agree that this will encourage more clients to diversify their portfolios through accessing investment opportunities that are uncorrelated to mainstream investment markets.

Commenting on the findings, David Hall, Managing Director of YFM Equity Partners, said:

 
 

“As we approach tax year end, it’s encouraging to see wealth managers are strongly in favour of adding VCTs to investors’ portfolios.  VCTs have a proven track record in delivering resilient returns during all stages of the economic cycle, and by investing today there’s a bigger opportunity to benefit from the eventual upswing.  Alongside the tax efficient solutions, it’s clear from our research that wealth managers and their clients value the crucial role VCTs play in backing the country’s early-stage businesses.  

“With volatility comes opportunity, and in times such as these, VCTs provide the funding young, growing businesses need alongside delivering attractive long-term returns for investors.”

YFM has experienced a strong level of investor demand for the £50m joint Offers by its two well-established VCTs, British Smaller Companies VCT plc and British Smaller Companies VCT2 plc (BSC VCTs).  Following the successful launch, applications received to date exceed £45 million. Considering the continuing level of demand, the Companies have confirmed that the overallotment facility of £25 million included in the Offers will be used. This increases the maximum amount which can be raised under the Offers to £75 million in aggregate. 

 
 

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