Tax rule changes, if announced in today's Budget to broaden the appeal of VCTs, would help the industry on the path to launching a new round of products for a wider range of clients says John Spooner, founder of VCT provider Quester
The bear market coupled with a focus on unquoted companies has made life difficult for both providers and investors in recent years, he admits, but changes are on the way that should boost sales, which have only hit about £30m across the industry this fiscal year, according to Quester figures.
Plans put on hold across the industry would not be unleashed immediately following the chancellor’s statements today, but new product launches could be flowing through by the first half of 2005, Spooner says.
However, if Gordon Brown does pull the correct levers, this year’s £30m figure could be dwarfed in a few years’ time if investors start approaching VCTs in a slightly different way yet still retain significant tax benefits.
"The key is putting the right money in," Spooner says.
"It's not about saving for a car in three years' time. It’s not about saving for five years or 10 years; people get their money back through tax breaks and tax-free dividends.
"It's a very long term savings product," he adds, suggesting that it ought to be viewed by the Treasury as a possible way to encourage greater savings in the UK.
VCTs could be an interesting asset class for those focused on pensions savings – although it would not replace pensions – as a proportion of their portfolio, Spooner says.
This would also depend on changes making VCTs less cyclical and appealing to a broader base of customers, he adds, but VCTs already have an edge in that they provide a simpler reading of the underlying value than, say, "units" in a pension fund.
The sector is considered risky because of the underlying assets, i.e., unquoted firms that VCTs hold, Spooner says.
But considering that an average £100,000 investment only costs the investor some £40,000 due to tax breaks, with perhaps £30,000 of that invested at £1,000 each in 30 unquoted companies, then it could be argued the risk is actually "well spread", he says.
"There is probably not as much risk as some think."IFAonline
Joined as head of strategy, multi asset, in June
Group income protection
Nine in 10 do not have income protection
Set to become part of Single Financial Guidance Body