VCTs being used by HNWs following cuts to pension contributions; amount invested has risen 65% over the last five years
New data released today shows the amount invested in Venture Capital Trusts (VCTs) reached the highest level in over a decade last year at £716m.
The amount invested has risen from £705m in 2017/18 and £435m five years ago in 2014/15. VCTs are listed investment vehicles that are designed to invest in early-stage companies that meet certain criteria.
Following the release of the data, Tim Holmes, Managing Director of Salisbury House Wealth, the leading financial adviser, comments:
“High Net Worths have had the amount they can contribute to their pensions cut, so VCTs are being looked at more closely.”
“Quite a few individuals have been hit by the tax on over-contributing to their pension and will not want to make the same mistake again. Other than VCTs, EIS and ISAs, there are few tax efficient products available.”
SHW explains the tapered Annual Allowance was introduced in 2016, reducing the amount someone earning £210,000 can contribute to their pension tax free from £40,000 to just £10,000.
“VCTs enable High Net Worths to recycle what they would have contributed to their pension into a fund that offers 30% income tax relief.”
“For investors who can afford to take a long term view and do not have high liquidity requirements, VCTs can make a valuable contribution to a portfolio. However, it is key that investors are aware of the risk profile of the VCTs before making the decision to invest.”
Salisbury House Wealth says there are generous tax breaks for investors in VCTs, which includes:
- Investors get 30% Income Tax relief on investments up to the value of £200,000 – so for every £1 you invest up to £200,000 you can reduce your income tax by 30p
- No tax on dividend payments from shares in VCTs
- No Capital Gains Tax on disposals of shares in VCTs