Venture Capital Trust (VCT) fundraising in 2017/18 hit the second highest level on record. In 2017/18 £728m was raised by VCTs, just shy of the £779m invested in 2005/6.
Venture Capital Trusts are companies that raise money to invest in other very small companies. To incentivise investment in this area, the government offers generous tax reliefs to VCT investors including 30% income tax relief. This is thought to have proven attractive to high-earning investors who are no longer able to contribute as much to pensions following recent changes to pension annual allowance.
The pension annual allowance is currently £40,000, but this reduces for those earning over £150,000pa. It is reduced by £1 for every £2 that earnings exceed £150,000, down to a minimum of £10,000 for those earning £210,000+.
These pension rule changes have affected doctors: firstly those earning above the £150,000 threshold and secondly those earning less but who receive an award or other significant increase in their pay. This can make the value of their NHS Pension jump in the year the award is received, using up a significant amount of their annual allowance.
Where there is little to no scope for further pension investment, VCTs represent another tax-efficient way of investing for the long term. It must be noted, however, that VCTs are very high risk investments and in this regard their risk profile is markedly different to a pension investment.
The value of tax benefits depends on individual circumstances and is subject to change by the government. This article does not constitute personal advice. To discuss tax-efficient investments please contact Richard Higgs on 0117 966 5699 or firstname.lastname@example.org.