New research from Intelligent Partnership finds that more than nine in ten (91 per cent) of advisers expected to do more business into VCTs over the next 12 months.
Discussion with advisers revealed that lower limits on the amounts that can be saved into pensions, and the threat to higher rate tax relief are expected to lead to increased take-up of other tax-efficient alternatives, such as VCTs.
Guy Tolhurst, Managing Director of Intelligent Partnership says: “We think that advisers may have been wary of VCTs in the past because of their reputation for high costs, trading at a discount to the NAV and because of the marketing advantages open-ended funds enjoyed pre-RDR. Our research suggests that this is now starting to change, and more and more advisers are considering VCTs”
The latest figures from the Association of Investment Companies reveal that the VCT sector has raised GBP429 million in the 2014/2015 tax year, the highest amount raised since 2005/6, with VCT funds under management rising from GBP3.22 billion to GBP3.46 billion over the year to 5th April 2015.
Ian Sayers, Chief Executive of the AIC, commented at IP’s recent VCT masterclass: “With the pension freedoms now a reality, the importance of tax planning for those in or near retirement has never been more important. The ongoing changes to the lifetime and annual allowances for pension contributions are also leading to increased demand for VCTs.”
The report also looks closely at the potential impacts of the recent changes announced in the July Budget to ensure continued compliance with EU State Aid Rules. Funds raised via the scheme can no longer be used for company acquisitions or management buy outs, and this will mean that some VCTs will have to adjust their operating models and are likely to have to take on more investment risk than previously.
Dan Kiernan, Intelligent Partnership’s director of research says: “When assessing VCTs, advisers need to be careful and must take the new rules into account if they are looking at a performance track record that was based upon an investment strategy built around acquisitions and MBOs”.
Tolhurst says: “It’s ironic that just as new pension limits and changes to higher rate tax relief make a great investment case for VCTs, changes driven by EU rules will put the brakes on fundraising for some outfits.”
Another new development that the report highlights is the inclusion of VCTs on adviser platforms. Changes announced in the 2014 Finance Bill allowed shares in VCTs to be bought by a nominee and still qualify for the tax reliefs. Nominee ownership is a key requirement in enabling financial advisers to manage their clients’ investments on platforms.