Venture Capital Trusts prepare for funding surge as tax year closes
As the tax year draws to a close, Venture Capital Trusts are readying for the late surge of investment into their pockets.
As always, money flowing into venture capital surged last month, hitting £144.5m in March, totalling £730m this year by 25 March.
Alex Davies, founder and CEO at Wealth Club, told City PM that he expected the total amount of money put into VCTs this year to come to around £850m.
This would be a 20 per cent drop on last year’s number, but considering that wider venture capital investment in Europe has fallen about 45 per cent, this drop actually isn’t too bad.
Davies also noted that VCTs have been much less hard hit than the investment trust sector broadly, which has had a tough time this year.
The reason why? Taxes.
You can claim up to 30 per cent upfront income tax relief on the amount you invest in VCTs, as long as you hold onto your shares for at least five years.
In addition, selling VCT shares is capital gains tax free, while any dividends issued by VCTs is also tax free.
This has left them more “insulated” from wider market trends than other investment vehicles, said Davies, even describing them as “tax driven products”
While the investment vehicles do have other benefits, such as supporting British innovation and the economy, Davies admitted that the main reason they attract so much investment was taxation.
Three of Wealth Club’s featured VCTs are open to investment up until the final day of the tax year on 5 April: Maven VCTs, Molten Ventures VCT and Pembroke VCT.
Maven VCTs are “steady eddy” trusts, said Davies, focused on finding mature companies in defensive or counter-cyclical sectors, with over 100 underlying holdings.
Molten Ventures is a tech-focused trust that is run by one of Europe’s most established venture capital firms, allowing it access to a variety of European businesses, such as ‘Thought Machine’, valued at over $1bn at its last investment round.
Finally, Pembroke has a focus on “consumer facing brands”, said Davies, with its largest holding, LYMA, recently seeing its medical-grade beauty laser voted as one of the best inventions of 2023.
In total, Davies said there were 16 VCT offers open currently.
However, he argued that the VCTs should only really be used by people who had maxed out their pension and ISA allowance, as the trusts are illiquid, and you must keep your money in them for five years to get the tax benefits.