With fundraising reaching a decade high last tax year, VCTs are delivering rich opportunities and benefits for investors and investees alike.
In the run up to last year’s Budget announcement, concerns grew about how the Patient Capital Review might affect the attractive tax reliefs given to Venture Capital Trust (VCT) investors. Fears were allayed, however, when VCT tax reliefs were actually enhanced rather than reduced. Investors continued to receive a 30% upfront tax break, tax-free capital gains and tax-free dividends, while VCT managers were given double the time to reinvest or distribute the proceeds of an exit.
This outcome suggests we may now be entering a period of stability; a sentiment strengthened by the record investment in VCTs last tax year, when fundraising reached £728 million – the highest level in more than a decade1. The upshot is twofold: last year’s investors will receive more VCT-related income tax relief than in any year since 20062, while numerous SME businesses will benefit from crucial VCT investment, offsetting their ineligibility for capital from traditional sources.
SMEs and the economy
When it comes to the importance of SME contributions to the UK economy, the figures speak for themselves. In 2017, small businesses comprised 99.3% of all private sector businesses and accounted for 60% of all private sector employment, with 16.1 million employees. What’s more, this vital segment of the economy had an annual turnover of £1.9 trillion – which comprises 51% of the UK’s total private sector turnover3.
At Puma Investments, our experienced investment team works with entrepreneurs to unlock the potential in their businesses. We select diverse, revenue-generating companies with significant growth opportunities, experienced management teams and robust business plans.
For instance, our VCT and EIS funds have invested in Brewhouse & Kitchen, helping this impressive brand grow from 1 to 23 microbrewery pubs around the UK. We’re also investing £7.35 million in Pure Cremation, a disruptive company that’s more than doubled its revenue in the past year and is a leading provider of direct cremations in the UK.
Through receiving investment at a pivotal, early stage of their lifecycle, VCT-funded companies are able to increase their profitability and invest in growth strategies, while providing investors with the opportunity to capitalise on their success.
The benefits of investing in VCTs
The diverse advantages of investing in VCTs apply to a range of different investors. High earners can claim up to 30% income tax relief on VCT investments of up to £200,000 a year. Furthermore, unlike pension contributions, VCT income tax relief can be offset against any income tax, including earnings from property, which means landlords can benefit from tax relief on rental income.
In light of the annual and lifetime limits attached to pensions, VCTs also offer an alternative way to invest tax-efficiently. For instance, VCT income tax relief can be used to reduce the tax paid on pension income for those facing income tax liability on pension drawdowns.
In addition, dividends from VCTs can provide a regular tax-free source of income. Since 2005, we’re pleased to have raised more than £230 million across our VCTs and, more importantly, paid more than £130 million in dividends to investors.
Puma VCT 13 - open for investment
Currently, Puma VCT 13, which is our latest VCT, is raising an additional amount of £5 million – and those who invest before 1 October will receive an enhancement of 1% in additional shares. With limited opportunity for new subscriptions, we encourage investors to apply early to avoid missing out.
The VCT targets average tax-free dividends of 5p per year from 2020, has a limited new capacity of £5 million and is managed by Puma Investments – an award-winning investment manager with a 20-year track record.
With business as usual returning to the VCT landscape, we look forward to being able to back more UK businesses and deliver high-quality, risk-adjusted returns for our Puma VCT investors. To discuss Puma VCT 13 with our team, contact us on 0207 408 4070 or visit our VCT page to find out more.