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Pembroke’s CEO Andrew Wolfson on VCTs: the benefits beyond tax relief

by | Oct 10, 2023

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Rising interest rates, a lack of consumer confidence and a slowdown in global growth provide a challenging macroeconomic backdrop for investment decisions.

With the government announcing additional tax allowance freezes, it’s no wonder more advisors are turning to alternative investment avenues for clients. For many, VCTs may be an attractive option worth exploring.

More than just tax relief

 
 

To the right investor, VCTs offer a unique – and potentially prosperous – opportunity into the world of entrepreneurship. This is in addition to the already very attractive tax incentives, which allow investors to claim up to 30% upfront income tax relief on the amount invested, tax-free capital gains and tax-free dividends.

While VCTs are widely acknowledged for their tax benefits, many advisers are yet to explore how their attractive offer has evolved beyond just tax breaks.

Pembroke VCT back ambitious founders to grow the businesses of the future and provide attractive returns to investors. A clear example of how a VCT can support innovative founders who are passionate about their business is the specialist food-delivery brand Pasta Evangelists, whose exit provided a 2.3x return for our investors.

 
 

Turning to the wellness industry – a market valued at over $5.3 trillion globally – we took a 20% stake in the burgeoning luxury wellness brand LYMA. Since investing, our valuation has increased 15-fold.

In addition, in the highly competitive fashion arena, we were proud that our investment in British fashion brand ME + EM achieved a return of 16x its original investment – demonstrating the high return potential of investing in UK VCTs.

Back British businesses

 
 

A key benefit of VCTs in the UK is their fundamental role in driving forward British innovation.

There are over five million small businesses in Britain, making up 99% of total business in the country; a driving force of the economy. Yet, many struggle to secure the funding they need to expand their businesses and grow to the next stage.

VCTs were established to plug that gap, channelling capital into early-stage companies across a range of sectors while supporting the founders with the expertise they need to drive the growth of their businesses.

 
 

Often, these companies are at the forefront of technological breakthroughs, providing solutions to challenging problems – from Cydar’s software which supports endovascular surgeons to operate with better patient outcomes using AI, to COAT’s more sustainable solution in sourcing paint. By allocating funds to such ventures, investors can directly contribute to British-backed development.

Diversify your investment portfolio and nurture economic growth

VCTs offer a curated path to diversification for your clients’ portfolios, allowing them to cast their nets across a wide expanse of early-stage and growth companies. From flourishing food innovators to disruptive retailers and technologies, VCTs provide a panoramic exposure to a range of sectors.

 
 

Investing in VCTs also provides a unique opportunity to be part of the dynamic growth phase of businesses. VCT investors can actively support portfolio companies as they expand, create local jobs and foster vibrant business ecosystems.

Tax incentives, coupled with the potential for significant returns, make VCTs a compelling option for IFAs to explore. However, for many fund managers and investors, it is the satisfaction of being part of a business’ journey, from start-up to scale-up to a mature and successful business that makes VCTs such a rewarding investment.

By Andrew Wolfson, CEO of Pembroke

 
 

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