BLACKFI NCH
Februar y 2021
NEWER VENTURE CAPITAL TRUSTS:
A STRONGER OPTION FOR CLIENTS
As the tax year-end approaches, Vince Keen, Blackfinch, highlights the reasons why he believes that advisers should consider the benefits of newer VCTs as part of the due diligence process
ESTABLISHED TAX PLANNING TOOL
established, and all subject to HMRC’s strict criteria, investors can consider the benefits of newer offerings.
2020 was a silver anniversary for Venture Capital Trusts (VCTs). It is over 25 years since the UK Government launched these tax-efficient vehicles to encourage support for new and growing firms. To offset investment risk, VCTs offer 30% Income Tax relief (minimum holding period five years); gains exempt from Capital Gains Tax on sales of shares; and no Income Tax on any dividends.
These may offer greater growth potential through a more concentrated portfolio of high-quality, early-stage companies. Firms’ adaptability and resilience in the face of the pandemic are now integral to investment teams’ considerations.
Over the years, they’ve become popular with investors, reflected in fundraising amounts. In the tax year 2019/20, VCTs raised £619 million. While, due to the impact of the coronavirus pandemic, this was lower than in 2018/19, it reflects the continued appetite for VCTs. (Source: The Association of Investment Companies, 2020). With tax mitigation always high on the agenda, VCTs continue to feature in client portfolios. BENEFITS OF NEWER VCTS Within the VCT investment landscape there is a wide range of offerings. Investors can select from older VCTs, with many operating since the 1990s, through to newer VCTs launched in the last two years. With VCTs so well
8
Shares in innovative new firms, that are well positioned for the future, can help to deliver excellent growth. This is alongside creating more diversification in a client’s portfolio. These kinds of investments can also make for a greater positive environmental, social and governance (ESG) impact. It’s worth exploring these aspects in more detail. HIGH PERFORMANCE HURDLES Older VCTs will contain a portfolio of mature holdings which might, on first glance, appeal to investors. However, one possible drawback of investing in these vehicles are fees which could dilute future returns. Many of these VCTs will have long ago passed through their hurdle for performance fees, which could dilute future growth for both existing and new investors. In contrast,
I FAmagazine.com
