Venture Capital Trusts: Continued Interest after Tax Year End

Tax efficient investments including Venture Capital Trusts (VCTs) are traditionally a focus for investors around the tax year end. This has now passed, but what we're seeing is continued interest in VCTs across the board, from investors keen to put their cash into these vehicles, companies that are looking for funding, and Government policy makers assessing legislation.

There are many reasons for this. On the investor side, with recent changes to tax legislation, particularly for higher earners, there are many more investors out there waking up to the benefits VCTs offer in the form of tax breaks (30% tax relief on the amount invested, tax free dividends and tax free capital gains when shares are sold). It's also now becoming understood that VCTs can be used as a complementary solution within pension planning, and that the 30% tax relief can be reinvested separately to generate more cash and tax reliefs.

There are other reasons for investors to be interested though. VCTs offer investors a route into venture capital; they're a way to support the entrepreneurs whose products or services have the potential to change the way in which we all live, and, at this stage in the economic cycle, contribute to economic recovery. Investing in VCTs, especially those that focus on new, high growth companies, of course carries a risk, but it's the ability of VCTs to provide an exposure to these high growth private companies at a low point in the economic cycle that is appealing to many.

As mentioned, high growth companies do have a certain level of risk but larger VCT fund managers are able to mitigate a proportion of this risk through a number of measures. Firstly, they ensure portfolio diversification so that the investments are spread across a number of business. In addition to investing in a series of different businesses, risk is further mitigated by investing across different industries. Secondly, having expertise and experience in the industries in which the portfolio businesses operate is essential to the assistance a manager can bring to their portfolio. At Octopus we have a large group of Venture Partners (in excess of 100), all experts in their field, whose skill and experience we are able to draw on to assist in the assessment, selection and subsequent growth of investments. This broad range of expertise enables our VCTs, such as Titan 4 VCT, to invest across a number of industries, whilst being able to bring to bear the skills and experience of individuals who have built businesses in those sectors.

All VCTs are subject to complex legislation which sets out how much we can invest in each company and over what time period. When company management teams, Octopus and our Venture Partners are all aligned, there is an opportunity to see a business really start to fly. It is in these instances that some of the regulations can be frustrating as there are limits to the amount and size the business can be when making initial and further investments. Fortunately at Octopus we have a range of funds to assist and help facilitate this onward investment, providing businesses with every opportunity to fulfil their potential. We also work with Government at a policy level to ensure the legislation continues to enhance and promote the entrepreneurs and businesses that have this growth opportunity and can assist the UK economy's return to growth.

While most policy is currently ‘on hold' in the run up to the general election, we're looking forward to the rest of the year in VCTs, from making further investments to evolutions in policy that can help us to deliver funding to companies and returns to our investors.