VCTs selling out fast as tax year end approaches

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Capacity in the venture capital trust (VCT) market is dwindling fast, with only few offers still open, representing £66 million of available shares, according to discount broker Clubfinance.

Investors are attracted to new issues of VCT shares because of the 30 per cent income tax relief they provide. Demand has grown strongly in recent years as pension tax relief has been curtailed.

The Association of Investment Companies (AIC) put fundraising figures for the 2016/17 tax year to 17 February 2017 at £265 million, up 43 per cent in comparison to £186 million by 17 February in 2015/16.

In addition, data from the AIC reveals that the VCT sector as a whole is up 82 per cent in terms of share price total returns over the last decade to 31 December 2016, with the added benefit of tax-free dividends and capital gains.

VCT SALES RACING AHEAD

Dr Philip Rhoden of Clubfinance comments: 'The VCT fundraising season is racing ahead compared to previous years. Already, 21 VCTs have launched offers this tax year that have closed fully subscribed, raising a total of £277 million.

'With no additional launches expected this late in the tax year, there are just eight VCTs with capacity still available.'

Most recently, Octopus Titan VCT this morning announced that it has raised a record £120 million – the largest ever VCT fundraising exercise.

Stuart Lewis, head of tax-efficient investment at Octopus, points out: '55 per cent of investors in this fundraise were new to Titan VCT, demonstrating a real surge in interest from a wider group of people.'

Jason Hollands of Tilney says the VCT market is an incredibly buoyant market where demand is strong, boosted by the new tapered pension allowance for higher earners and cuts to the lifetime allowance - but supply of VCT shares issues and enterprise investment schemes (EIS) is more limited than last year.

Hollands says excluding un-triggered over-allotment facilities, an option some VCT boards have to raise more money than targeted at their discretion, some 61 per cent of targeted capacity in new VCT share issues launched this tax year has already been used up.

He adds: 'At current pace, there is a going to be a serious lack of supply by the final weeks of the tax year, which is typically when many VCT investors act.'

The remaining offers, according to Clubfinance, are:

  • Two share classes from Downing FOUR VCT still have around £20 million left, with the potential to activate an over-allotment facility adding up to another £20 million
  • Elderstreet VCT has circa £10 million remaining, having already activated its over-allotment facility
  • Foresight VCT has around £19 million left, having released an additional £20 million capacity this week
  • Hargreave Hale AIM VCT 1 has £5 million capacity remaining, having just activated its over-allotment facility. Hargreave Hale AIM VCT 2 decided not to increase its offer this tax year, and is expected to close imminently
  • Pembroke VCT has around £8 million left, but could decide to accept a further £10 million
  • Triple Point Income VCT has less than £3 million remaining, but could add an extra £15 million

This means that capacity remaining is between £66 million and £111 million depending upon the remaining over-allotment facilities, according to Rhoden.


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