Despite the economic volatility of recent times, venture capital trusts (VCTs) have so far proven resilient in the face of market uncertainty.

They have raised more than £1bn annually over the past two years and have deployed record levels of capital in the UK’s brightest emerging businesses, helping to drive the growth of SMEs, as well as deliver good returns for investors. Investment in the right VCTs, which target high-growth sectors such as healthcare and technology, including AI, data analytics and cloud computing, can also be one of the best ways to build a balanced portfolio in difficult economic times.

Becoming part of the mainstream

Increasingly VCTs are becoming a mainstream part of investors’ portfolio planning. They are now included in regular financial advice, according to retail strategy directors at investment houses. A survey by the Association of Investment Companies (AIC) earlier this year found that 60% of respondents used VCTs as a way to save for retirement.

True lifetime allowance charges have been removed for the 2023/24 tax year and there are plans to abolish the allowance entirely from 2024, so retirement savers will no longer have an upper limit on the value of their pensions. However, the abolition of the lifetime allowance will not be a certainty until it is confirmed in a finance bill in 2024, and the Labour Party has promised to reinstate the allowance if it wins the next election.

Also, many investors, particularly those in retirement, look to sell investments in ISAs, as they don’t incur capital gains tax (CGT), to boost their cash flow. But if some investments are doing well and generating good dividends then this may not be a course they want to pursue, so VCT dividends, which are also tax free, can bridge the gap.

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