COMING OF AGE: VCTS APPEAL AND NEED IS GROWING The number of people benefitting from VCTs is increasing just as the alternative investments are becoming better understood and their appeal is rocketing
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CTs are becoming a more obvious investment choice for an increasing number of high earners just at a time when they are ‘coming of age’.
The appeal of VCTs continues to grow and last year, Association of Investment Companies (AIC) data showed that the alternative investment vehicle had raised £728 million in the 2017/18 tax year, a huge 34% rise on the £542 million raised the year before, and the highest ever amount raised at the current level of 30% upfront income tax relief. Before last year, the largest sum raised was £779 million, when the initial tax relief on investments was 40%. As of 5 April 2018, the amount of assets under management in VCTs totalled £4.3 billion, showing the appetite for the investments is significant. The investments had a further boost from the government’s Autumn Budget last year, according to Annabel Brodie-Smith, Communications Director at the AIC. She noted the Budget reiterated VCTs place as ‘an effective provider of patient capital’. ‘There’s a lot to be excited about in the VCT industry, let alone the companies that bring it alive,’ she says. While the backdrop, and government attitude towards VCTs, is all positive, there is still a relatively small number of people using VCTs, and plenty of people missing out on the investment opportunities as well as tax relief. David Lovell, Operations Director at Growthinvest, a platform that provides access to tax efficient investments, said while the funds have seen record years, ‘I firmly believe there’s a much bigger audience among high-net-worth investors and the number is relatively small’.
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GB Investment Magazine · February 2019
With many problems in financial services, the problem boils down to education, both on the clients part and the advisers part. But circumstances dictate that more clients than ever will need to, and be willing to, access alternative investments. Lovell says for some clients ‘VCTs aren’t right for them or they’re not comfortable with the level of risk’ but despite this there is ‘still a need for further education for investors and advisers that these tax schemes are there and they’re government-backed’. One of the biggest boosts for VCTs has been the reduction of the limits on pension contributions. The lifetime allowance has been cut from £1.25 million to £1 million, meaning high earning investors have had to find new ways to fund their retirement without incurring large tax charges, and are therefore making VCTs a core part of their retirement plan. ‘We’re seeing more and more advisers coming to us saying they’ve not done this before, but they need to as they have higher-rate taxpayers approaching their pensions limit, and if they don’t mention this as an alternative, someone else will,’ says Lovell. ‘There’s a lot of great information out there and advisers are realising that they need to get into the marketplace.’ While VCTs are of interest for high-net-worth investors, VCT industry experts and advisers both agree that they are not a substitute for pensions. John Glencross, Chief Executive of Calculus Capital, says his experience is ‘knowledgeable advisers are looking at [VCTs] as a companion to pensions’ rather than an alternative. He believes there are many people out there at the moment who do not even know they need an alternative to their pension as they are unaware of the pension allowance changes.
