Venture Capital Trusts (VCTs) have been a cornerstone of UK innovation for three decades, fueling the growth of thousands of early-stage companies. As we mark their 30th anniversary, it’s worth reflecting on their impact—not just in numbers, but in the businesses they’ve helped shape and the economic growth they’ve driven.
While the landscape has shifted significantly – particularly with the rise of technology-led ventures – the core purpose of VCTs remains the same: providing investors with tax-efficient access to high-growth companies while driving entrepreneurial success.
VCTs: Three decades of growth and innovation
VCTs were introduced in 1995 by then-Chancellor Kenneth Clarke to stimulate investment in early-stage businesses, providing both economic growth and tax incentives to investors. Over the past 30 years, the venture capital landscape has shifted dramatically, particularly with the rise of technology-led innovation. Despite these changes, the core mission of VCTs remains unchanged: backing ambitious, high-growth businesses that drive the UK economy forward.
At Albion Capital, we have been involved in this journey from the very beginning. Having launched some of the earliest VCTs, we’ve seen the sector evolve greatly: now with over £8 billion in assets under management and a record-breaking £1.08 billion raised in 2022/23 alone, VCTs continue to attract investors looking for both tax-efficient returns and exposure to the UK’s most promising businesses.
The investment case
The investment case for VCTs has never been stronger. A few key reasons stand out:
● Access to high-growth companies: VCTs provide investors with a rare opportunity to participate in some of the UK’s most promising businesses.
● Tax efficiency: With the right tax planning, VCTs offer an effective way to mitigate tax liabilities while achieving portfolio diversification.
● Diversification: By investing across a portfolio of early-stage businesses, VCTs provide exposure to a broad range of industries
Why advisers should take notice
For advisers seeking tax-efficient investment options for their clients, VCTs offer an attractive proposition. The tax-free income they generate, which typically yields around 5% annually, makes them particularly appealing for those looking to supplement their retirement savings. With pension contribution limits tightening, high-net-worth individuals can also use VCTs to build a tax-efficient retirement income stream.
Investor interest remains strong, with VCTs raising £388 million in the current tax year as of January—up from £306 million at the same point last year. As fundraising momentum continues – outpacing last year – the current investment climate presents a strong case for incorporating VCTs into client portfolios. The combination of attractive tax reliefs, access to high-growth businesses, and the rising importance of technology investments makes VCTs a crucial tool for investors and advisers alike.
Written by Will Fraser-Allen, Managing Partner at Albion Capital
