Investors face squeeze for VCTs this tax year

VCT investors face a squeeze to access funds over the next two months as pension changes fuel demand in a year that many managers are lowering their fundraising targets due to an accumulation of cash.

ProVen Growth & Income closed its offer on Tuesday and the Unicorn AIM VCT is likely to complete by this weekend, while the Albion VCTs and Maven VCT 6 are approaching their fundraising targets.

Tilney Group managing director Jason Hollands says most VCT inflows happen in the last six weeks of the tax year, but this year investors may miss out if they leave it that late.

“Advisers and investors waiting until late in the day are likely to be disappointed and told there is “no room at the Inn” with a number of offers closed for new investment.”

Investments in VCTs must be made by 5 April.

The pensions lifetime allowance reduced from £1.25m to £1m this year, while a new tapered annual pensions allowance for those with earnings above £150,000 has been introduced. This leaves many investors with little choice but to opt for EIS, SEIS or VCT if they want a tax efficient investment.

At the same time, many VCT managers have built up cash as new Government legislation meant they held back on new deals as they got to grips with the changes and sought guidance from HMRC.

YFM Equity Partners managing director David Hall says their British Smaller Companies 2 fund closed in just five days and he expects their British Smaller Companies fund, which will open for top-ups later in February, to close quickly also.

“Choice looks like it could be much more limited than in recent years towards the end of the tax year,” Hall says, although he argues this reflects the mix of offerings rather than the overall amount of funds being sought.

Outside YFM’s own products, Hall says Elderstreet, which now has the support of Draper Esprit, could be an interesting VCT provider to keep an eye on this season, while Pembroke provides niche offerings that can provide portfolio diversification.

Funds offering asset-backed investments will likely face high demand as the Government removes renewable energy production within EIS and VCTs and investors seek alternatives, Kuber Ventures CIO Dermott Campbell says.

The removal of renewables reduced the market capacity by an estimated gross £500m for the 2016/17 year.

EIS investments provide greater flexibility than VCTs especially for those who miss the April deadline, Campbell argues, because investors have the ability to carry back the investment to the previous tax year.