VCTs fill in record speed ahead of tax year-end
- On February 23, 2017
- By Kate Arnold
Tax-efficient investments, such as VCTs, have been reaching their fundraising targets in record times, spurred by rule changes and the approaching tax year-end.
Northern Venture Trust’s £4.3m offer of new ordinary shares filled in just two days at the beginning of February while YFM’s British Smaller Companies VCT2 raised its £4.25m limit in a company-record five days at the beginning of January.
Other quick-filling offers include Unicorn’s AIM VCT, which closed within two weeks and Maven’s VCT 6, which reached its £8m top-up target by 7 February, while numerous other fast-selling examples can be found elsewhere in the sector.
Last year’s venture capital trust (VCT) rule changes, such as their no longer being able to back management buy-out strategies and the introduction of the new seven-year holding rule, have restricted managers’ ability to raise large amount of capital. This has resulted in many popular managers’ offerings closing in record times, according to LGBR Capital head of tax products Jack Rose.
“Much has been made of pension changes driving demand for VCTs this year,” he said. “Their tax-free income and upfront income tax relief does make them quite attractive to investors but I would suggest this year’s rush and capacity issues have more to do with many manager’s prudent approach to raising appropriate levels of capital to ensure they can deploy it into good opportunities.
“Nevertheless, many people still have carry-forward allowances to use with regard to pensions, which actually suggests this issue is only going to be further exacerbated in years to come – unless something changes to free up more capacity in the market.”
YFM managing director David Hall warned investors now have a job to do in picking the best remaining offers. “For those who are left, it is important for investors to pick carefully, looking at those with the teams to deliver under the new rules and where the performance record is only just emerging,” he said.
Seneca Partners’ Managed Storage EIS Fund has already hit its £10m initial tranche and business development director Ian Battersby pointed to the removal of renewables as a qualifying tax-advantaged investment as a reason for the increased demand in the sector.
“With ‘renewables’ no longer a qualifying home for tax advantaged investments, the market expects a surge in demand which may not be fully satisfied this tax year,” he said. “The month of March is set to be a very interesting time in the Enterprise Investment Scheme market place.”
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