Welcome back to our series of exclusive interviews with industry experts. In this series, we speak to key figures in the tax-efficient space to find out their outlook on the new tax year, hear their thoughts on the 2023-24 tax year, and provide their tips for advisers.
This time, we have Dan Perkins, Investor Relations Partner at YFM Equity Partners. Dan joins us to discuss the 2024 tax year and provide some expert advice.
Q: What does the start of a new tax year mean for tax-efficient investing?
A consistent message from all politicians, irrespective of party, is that accelerating growth and productivity is high on the agenda. They view these as fundamental pillars to enabling the much-needed increase in expenditure on public services – with VCT and EIS funding being key planks in the strategy.
It will be interesting to see what other initiatives are developed to help deliver the economic growth the UK so desperately needs – perhaps looking at skills gaps or ensuring R&D tax credits get to those businesses investing for the future – any or all of these can only help with delivering the desired growth and continuing to increase the pool of investment opportunities we see in the tax-efficient investment industry.
Being prepared to invest early when popular offers launch is our key takeaway from the 23/24 season, which saw the BSC VCTs deliver their largest fundraise to date of £90m in just over four months. By launching earlier than usual we were able to avoid the traditional tax year end panic, making the investment journey for both advisers and investors that little more pleasurable whilst also giving ourselves a modest head-start in terms of our 24/25 deployment plans.
Q: Do you see 2024 being a positive year for the tax-efficient space?
The 23/24 tax year was the third highest fundraising year on record. In tandem with this, investments by VCTs continue to rise – in the three years 2021-23 investment rates are 50% higher than in 2018-2020. There aren’t many industries showing such a post-pandemic increase. It’s not a big leap to see 24/25 being a positive year for stand-out entrepreneurs seeking funding as managers look to sensibly deploy their freshly raised capital into the best high growth businesses the UK has to offer.
At the other end of the entrepreneurial journey, the UK M&A market being sluggish over the past 12 months has meant that additional preparation and support (planning and positioning rather than financial) has had to go into delivering and crystallising value. This is likely to continue.
Nonetheless, we are cautiously optimistic when it comes to exits, our BSC VCTs delivering three realisations (both full and partial) already in 2024. We have to stick to our focus on quality and forming long-term relationships with the entrepreneurs that we support, helping them with building their management teams and operational structures. This has stood us and them in good stead through the highs and lows of building a successful business and ultimately crystallising the value they have created for our shareholders.
Q: Does the prospect of a general election have an impact on tax-efficient investment in the year ahead?
In any general election year there is always going to be an element of economic uncertainty and this time is no exception, particularly given the way the polls are currently shaping up. However, there are no signs of uncertainty with regards to the regulatory framework within which we invest and as mentioned earlier – “growth, growth, growth” is a consistent mantra.
At an investment level, despite the challenging macro-economic backdrop of the past 24 months, our forward-looking pipeline of both potential new and follow-on investments is strong, demonstrating the volume and calibre of entrepreneurial businesses in the UK seeking growth capital.
Indeed, research we conducted for our report on UK entrepreneurship published last year “The Entrepreneur Economy” showed that only a quarter of entrepreneurs surveyed felt the state of the wider economy is likely to hold back their growth, with almost 60% believing there would be more entrepreneurship in the country over the next five years. Supporting UK entrepreneurs is a cross-party focus and as such we are not anticipating too much change ahead, irrespective of who wins the keys to Number 10.
Q: What advice can you share with advisers on how to take advantage of tax-efficient investments for their clients?
Start your client conversations early. Quite often, the more popular VCTs fill up fast when they launch, meaning the potential for clients missing out on the right investment opportunity for them and their portfolio. Whilst there can be an opportunity cost to taking this approach (most managers require a completed application form and funds for a subscription to be valid), some managers offer an interest-bearing client account whilst monies await allotment – something definitely to keep an eye out for.
Finally, just as with any form of investing and irrespective of tax reliefs available, focus on portfolio diversification at both a manager and asset level. Smaller, unquoted businesses typically provide a modicum of differentiation from how other more traditional investment strategies might perform throughout the wider economic cycle and so understanding how a tax-efficient investment fits in with your client’s wider portfolio is key to delivering positive outcomes.
Dan Perkins is responsible for investor relations and fundraising across both the LP and VCT opportunities that YFM manage. He is based in the London office but holds relationships across the country with investors and their professional advisers.
