A record year for VCTs
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
According to new figures compiled by the Association of Investment Companies (AIC) money invested into Venture Capital Trusts (VCTs) in the 2015/16 tax year was £458 million.
This is the third biggest fund raising year on record. Only the 2004/05 and 2005/06 tax years were more successful but at the time the income tax relief on offer was 40% and not today’s 30%.
Despite the record fund raising, the total value of VCTs only increased by £100 million – from £3.5 billion to £3.6 billion. This can largely be attributed to dividends paid during the year from the most successful existing trusts. Many VCTs have an annual targeted dividend of 5% - indeed in the previous year to March 2015, private investors received a record £240 million of dividends.
In addition to normal dividends, the last year has seen many special dividends from VCTs from the likes of Maven, Octopus and Elderstreet on the back of successful tax-free exits of underlying businesses.
It has been a good year for exits, with some notable winners across different VCTs. Two of the higher profile exits were Swiftkey, held in the Octopus Titan VCT, and Monica Vinader, backed by the Proven VCTs. Swiftkey helped fund a 5 pence per share special dividend and Monica Vinader delivered a 12 x return based on the original investment. Please remember, past performance is not a guide to the future.
In addition, other VCTs continued delivering less spectacular but equally vital returns with the likes of Maven selling Dantec Hose for a 2.1x return. Big winners create the headlines, but having a raft of consistent profitable exits is arguably more important in helping to fund the annual dividends. Of course, not all the investments within a VCT will work out.
It is no surprise VCTs have proved popular with investors as the combination of investment in small entrepreneurial high-growth companies with generous tax benefits is compelling. Add in the fact that pension investing has become more restrictive and it isn’t hard to see why £458 million was invested in the last tax year.
Whilst many of the offers available last tax year have already closed, there are still some VCTs investors could consider.
If you think VCTs are for you, there are two good reasons to consider investing now, at the start of the tax year, compared to the end. Firstly, you could get an extra year’s worth of dividends. Secondly, the tax relief can be paid during the year rather than reclaimed back after via the tax return.
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Where could you invest in the new tax year?See open VCTs