Investors looking for yield are finding Venture Capital Trusts (VCT) are gave average returns of nearly 9% last year.
VCTs enjoyed a good year with £429 million staked in the tax-effective schemes.
But the future could be more challenging as rule changes cap investment at £12m for standard VCTs and £20 million for knowledge intensive companies.
Companies will also have to show that they have made a commercial sale in the past seven years – or 10 years for a knowledge company.
VCT cash can no longer go towards management buy-outs or acquisitions under European Union state aid rules.
VCT tax breaks
The Association of Investment Companies (AIC) has released data showing that despite the changing landscape, VCT investment is only slightly down on pre-rule change levels.
Between April 6, 2015 and January 31, 2016, VCTs saw inflows of £150 million, compared with £165 million for the same period a year earlier.
VCTs offer investors 30% income tax against the value of an initial investment and capital gains tax breaks on exit from the scheme.
“Management buy outs have effectively been outlawed,” said Stuart Veale, Managing Partner of Beringea LLC and Manager of ProVen VCTs.
“Investors have to weigh the tax breaks and tax-free dividends against the restrictions that are now in place, but VCTs can still offer a great return.”
Microsoft buys out new app
One VCT company Octopus Ventures has announced an exit from SwiftKey, a company that produces an app to aid faster and easier typing on mobile phones and tablets.
The app is on 300 million gadgets worldwide and has been bought by technology giant Microsoft for £174million.
Investors will receive a 5p special dividend on top of the regular 2p dividend as a result of the exit.
Octopus runs the Titan VCT, which is also behind companies such as Swoon, an online furniture company; Secret Escapes, a membership travel web site and was involved with internet property portal Zoopla and food business graze.com.
“This is a big day for SwiftKey and shows that the venture capital world is thriving and that there is still room for innovators to develop and sell on a business,” said Alex Macpherson, fund manager of the Titan VCT.
