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HMRC: income tax relief claimed by VCT investors up 61% - reaction

ended 24. January 2024

HMRC has just published data on VCT investment in the UK. Full report >> here <<, key points below. Newspage asked IFAs and money coaches for their views, bottom.

  • in 2021 to 2022, Venture Capital Trust (VCT) investors claimed Income Tax (IT) relief on £1,040 million of investment. This is an increase of 61% from 2020 to 2021. This is in line with the 68% increase in the amount of funds raised by VCTs in 2021 to 2022 compared with the previous year
  • the number of VCT investors who claimed Income Tax relief increased by 32% to 25,800 in 2021 to 2022

5 responses from the Newspage community

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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
It's not surprising to see these figures. Many higher-earners have found themselves in a position where they've been severely limited to how much can be contributed to their pensions because of the tapered annual allowance. It's natural for them to explore other options to invest tax-efficiently like VCTs and EISs. It's important, however, to understand the nature of the underlying investments within these types of investment vehicles, what can go wrong and whether they fit within a person's overall financial plan and risk profile.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The increase in investors claiming tax relief will be a welcome signal that UK plc is worth investing in. There are many tax benefits of investing in smaller companies, but unless there is confidence in the sector it won't attract inflow funds. Existing VCTs have held up well since Covid, and many think if Britain's best small businesses can survive that, they are worth a punt now, too.
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Graham Wells
Founder and Financial Coach at GroWiser Financial Coaching
Venture Capital Trusts can add an interesting dimension to investment portfolios and it's encouraging for the UK to see significant growth in this area over the past few years. VCTs are particularly attractive to those on a high income due to the tax advantages, but it's important to fully understand what's involved. These are a way to invest in young, innovative companies and, as such, carry a higher degree of risk. It's important to understand how this type of investment fits with your overall strategy and appetite for risk before getting too excited about the tax savings on offer.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
It is great to see so many people backing UK start ups. This is often the go to investment for those that have already invested the maximum into their ISAs and Pensions. However, as the investments are in start up businesses, they are high risk and although the tax incentives are generous, their is a risk of losing all of your money. You should invest in a VCT because you like the investment, not just to save tax. It is interesting that the most common investment amounts are £5,000 - £10,000 and £25,000 to £50,000 which hopefully means these are investors with large amounts investing a small proportion into VCTS, rather than small investors putting away all their money.
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Gary Bush
Financial Adviser at MortgageShop.com
This large upswing is caused by the lack of decent alternatives, although it is good news for UK Plc. Many high earners are struggling with the headroom allowed for their pension contributions and it was obvious that available alternatives would see a sizeable uptick.