Octopus Investments has predicted a steep rise in allocations to venture capitalist trusts (VCT) in the coming year, having already seen a ten-fold increase in money attracted by its funds in the last year.
The VCT provider said the products were likely to benefit from the regulatory ban on the promotion of unregulated collective investment schemes (UCIS) to retail investors, which took effect on 1 January.
VCTs were carved out of the new regulation, which was formulated last summer following a Financial Conduct Authority (FCA) review into UCIS, which found that the "riskier and often very complex fund structures" should only be sold to sophisticated investors and high net worth individuals "for whom these products are more likely to be suitable".
Advisers have used VCTs as tax planning tools alongside ISAs due to their tax free dividends, but Octopus business line manager for VCTs Mike Piddock said the vehicles could now become a popular choice altogether.
He said: "We're seeing investors looking at VCT investment throughout the year rather than just a tax planning solution to be used in March alongside their ISAs. At Octopus we've received over 1,300 new VCT investments to date since the start of the tax year in April, with ten times as much invested as this time last year.
"If this interest continues into 2014, there is a chance that our VCTs will be filled before tax year end."
He added: "Investors are recognising the role smaller companies can play within an investment portfolio, and how VCTs offer access to this sector in a highly tax-efficient manner.
"Established VCTs which have proven their ability to deliver on their investment objectives are in high demand, and savvy investors (and their advisers) will be acting early this year to ensure they get the pick of the bunch."
Research by rival venture capitalist Albion Ventures last month suggested that investors would be turning to VCTs to sidestep the reduced pension allowance that takes effect from this year.
More than one in six people investing in a VCT this tax year will be doing so for the first time, Albion said.
The Chancellor announced in his 2012 Autumn Statement that tax free pension contributions would be capped at £40,000 per year, down from £50,000, and at £1.25m over the life time of the pot.
However, he stopped short of introducing a life-time cap on ISAs in last year's Autumn Statement, as had been anticipated. Instead, he scaled back tax relief on VCT share buybacks made within six months of selling shares in the same VCT.
A share buyback is where a VCT launches an offer to existing shareholders to cash in their shares, having originally achieved a 30% tax credit on their investment and held the shares for at least five years, on the condition they then reinvest into a new offer.
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