According to the latest government statistics, £668m of venture capital trust (VCT) shares were issued in 2020/21, which is up 4% from a year earlier and almost double the amount raised in 2009/10. 40 VCTs issued funds in 2020/21, which is down from 43 a year earlier, and 57 were managing funds, down from 61. In the previous tax year (2019/20) investors claimed income tax relief on £575m of investment, which is down 16% in a year. The number of VCT investors claiming tax relief in that year fell 11% to 17,725.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown commented: ‘The current tax year is expected to see even more cash flood in, as investors shelter their money from dividend tax rises in April. But while the tax benefits are impressive, VCTs come with huge risks, so we can’t let the tax tail wage the investment dog.
‘Demand for VCTs waxes and wanes depending partly on rule tweaks. In 2019/20 demand fell back because the rules were tightened to restrict where VCTs could invest, which made them a riskier prospect. The change was made in 2017, but it took effect more gradually. It’s also driven by changes in tax rules, and the 1.25 percentage point rise in dividend tax is expect to trigger a bumper year for VCTs. Demand also soars every time pension allowances get less generous, forcing those with higher incomes and large pensions to look elsewhere for tax relief. They came close to record highs between 2017 and 2019, when the pension lifetime allowance dropped from £1.25 million to £1 million.’
According to the latest government statistics, £668m of venture capital trust (VCT) shares were issued in 2020/21, which is up 4% from a year earlier and almost double the amount raised in 2009/10. 40 VCTs issued funds in 2020/21, which is down from 43 a year earlier, and 57 were managing funds, down from 61. In the previous tax year (2019/20) investors claimed income tax relief on £575m of investment, which is down 16% in a year. The number of VCT investors claiming tax relief in that year fell 11% to 17,725.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown commented: ‘The current tax year is expected to see even more cash flood in, as investors shelter their money from dividend tax rises in April. But while the tax benefits are impressive, VCTs come with huge risks, so we can’t let the tax tail wage the investment dog.
‘Demand for VCTs waxes and wanes depending partly on rule tweaks. In 2019/20 demand fell back because the rules were tightened to restrict where VCTs could invest, which made them a riskier prospect. The change was made in 2017, but it took effect more gradually. It’s also driven by changes in tax rules, and the 1.25 percentage point rise in dividend tax is expect to trigger a bumper year for VCTs. Demand also soars every time pension allowances get less generous, forcing those with higher incomes and large pensions to look elsewhere for tax relief. They came close to record highs between 2017 and 2019, when the pension lifetime allowance dropped from £1.25 million to £1 million.’
