Budget changes have seen VCT sales this tax year fall more than £500m on the previous year, according to the Allenbridge Group.
The research company suggests the total for tax year 2006/7 is £269.32m, a drop of £521.08m from the £790.40m total in 2005/6.
Allenbridge says budget changes to VCT rules can be blamed for the drop in funds raised.
The Chancellor Gordon Brown reduced the income tax break on VCTs from 40% to 30% and increased the holding periods from three to five years.
Ewoud Karelse, an analyst with Allenbridge, says it suspected a drop in funds following the changes.
“We did predict that the total raised for this tax year would be around £250m,” he says.
However, further changes to VCTs made in the Chancellor’s recent Budget could hasten their decline yet further.
Under the changes, a company raising money under a venture capital scheme will have restrictions on the amount it can raise and the number of people it can employ.
The changes, which came into force on April 6, apply, in varying ways, to all investors under the Enterprise Investment Scheme (EIS), the Corporate Venturing Scheme (CVS), and the venture capital trust (VCT) scheme, as well as firms attracting investment as a result of those schemes.
They state a company raising money in this way must have fewer than 50 full-time employees at the date on which shares or securities are issued.
In addition, a new investment limit will also apply to a company raising money under venture capital schemes.
For an investment to qualify for relief (under EIS or CVS) or to be treated as a qualifying holding of a VCT, the company must have raised no more than £2m in the year ending on the date of the investment.
If the limit is exceeded, none of the shares or securities within the issue will qualify for relief under the EIS or CVS, or rank as a qualifying holding of a VCT.
According to Allenbridge, the sector breakdown this year showed the generalist area took 69% of the market, specialist 19%, with the AIM sector trailing at 12%.
The figures show that apart from the Baronsmead AIM VCT, which raised £12m, other AIM VCTs raised “tiny” top ups.
In the generalist sector, the TP70 VCT raised the most amount of funds this year, at £28.89m, followed by Octopus Protected VCT at £27.39m. While in the specialist sector, Edge Performance VCT topped the table at £12.62m.
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