There’s nothing like an upcoming budget and scheduled tax rises to channel money into venture capital trusts (VCTs). As at 11 October, VCT sales for the 2021-22 tax year hit £181m, according to broker Wealth Club. That compares with £41.5m over the same period in the 2020-21 tax year.
The VCT fundraising season got into full swing in September and, at time of writing, there are 12 offers open to invest in. Among the more attractive offers, says Jason Hollands, managing director at Tilney Smith & Williamson, is Hargreave Hale AIM VCT (HHV), set up in 2004 and run by the same team who manage the highly rated Marlborough open-ended funds. This VCT has delivered a net asset value (NAV) total return of 80 per cent over the past five years and has an ongoing charge of 2.25 per cent, according to the Association of Investment Companies.
Alex Davies, founder of Wealth Club, highlights Pembroke VCT (PEMB), which he describes as “coming of age". This year it achieved its first two profitable exits from fresh pasta delivery service Pasta Evangelists and cold-pressed juices and nut-based milks producer Plenish. Davies says that “the portfolio looks very promising, with a number of fast-growing companies that have fared very well during the pandemic”.
A key attraction of VCTs is their tax breaks and dividends, although these can be erratic. When you invest in a VCT you can claim up to 30 per cent income tax relief at the point of investment and returns, generally paid as dividends, are tax-free too. This might be all the more appealing as dividend tax rates are set to rise by 1.25 per cent at the start of the next tax year.
The sacrifice you make is that VCTs have poor liquidity, you can only keep any tax relief if you hold your investment in them for at least five years and their fees are high. Investing in early-stage companies is also risky and there is a chance that the recent rush of money might push the price of investee companies up. But back a manager who picks the right investments and you could see handsome rewards.
Typically, VCTs should only be considered by high earners who have maxed out their individual savings account (Isa) and pension allowances. It is important to remember, as Hollands puts it, that the reason why the government provides tax incentives for VCT investors is to compensate them for the risks involved.
But following the Conservative party conference, it seems that taxes are only moving in one direction. And supposing the tax privileges on VCTs stay put, these vehicles, when managed well, look increasingly promising.
Open VCT offers
| Product | Target dividend | Initial charge | Funds raised / sought | Deadline |
| British Smaller Companies VCTs (2 in joint offer) | Unspecified | 5% | £38m / £60m | 1 Apr 2022 |
| Hargreave Hale AIM VCT | 5% of NAV | 3.50% | £35.5m / £40m | Limited capacity remaining |
| Octopus Apollo VCT | 5% of NAV | 5.50% | £10m / £40m | 29 Oct 2021 for early bird saving |
| Pembroke VCT | 3p per share | 5.50% | £10.6m / £40m | 15 Oct 2021 (3pm) for declared dividend, 5 April 2022 |
| Blackfinch Spring VCT | 5% from 2024 | 5.50% | £84,000 / £20m | 26 Nov 2021 for first allotment |
| Calculus VCT | 4.5% of NAV | 5% | £10m sought | 28 Jan 2022 |
| Downing Four VCT (AIM, Healthcare & Ventures) | 4% of NAV | 4.50% | £700k / £30m | 29 Oct 2021 for early bird saving |
| Foresight Williams Technology Shares | 5% from 2024 | 5.50% | £8.8m / £20m | 29 Dec 2021 for 2021/22 allotment |
| Foresight VCT | N/A | 5.50% | £4.2m / £20m | 4 April 2022 |
| Maven Income and Growth VCTs | N/A | 5.50% | £3.3m / £20m | 28 Jan 2022 for early bird saving |
| Puma VCT 13 | 4p - 6p | 3% | £5.3m / £25m | 30 Nov 2021 for early bird saving |
| Triple Point VCT 2011 | 5p per share | 5.50% | £300k / £10m sought | 31 Dec 2021 |
Source: Wealth Club and Bestinvest, 12.10.21
