VCTs have seen their popularity soar in recent years. So what's the appeal and why should VCTs be on investors' radar?
A big reason is that the government provides powerful incentives to invest in VCTs. Investors should receive up to 30% income tax relief* on new investments into VCTs, plus tax-free dividends and capital growth, providing the shares are held for five years.
This applies for up to £200,000 per year, unlike pensions or ISAs, which have less generous annual allowances (currently usually £40,000 and £20,000 respectively).
Recent restrictions on the tax breaks available from pensions have also increased the appeal of VCTs. In particular, the reduced tax relief on pension contributions for those earning over £200,000 (previously £150,000) has led investors to look elsewhere for savings options.
There is also the problem of the lifetime allowances, which restrict the amount people can save into a pension to £1.07m before tax penalties apply.
And that's not all. Nadia Halila, senior business development manager at Puma Investments, says recent tax rises have also increased the relative appeal of VCTs. "The income tax thresholds have been frozen until 2026, which means there will be another million people paying higher rate tax.1 There is also the new social care levy, meaning there are more conversations about paying tax."