Cash staked by business angels in tax-efficient investments have soared in the past 12 months, according to fund managers.
Money going in to Venture Capitalist Trust hit the second highest level since VCTs started in 1995.
Investors ploughed £542 million into VCTs in the 2016-17 tax year – an increase of almost 20% on the previous tax year’s tally of £458 million.
VCT assets under management also increased from £3.6 billion to £3.9 billion during the year.
The record for VCT investment was set in 2004, when £779 million was paid in.
Great news for small companies
“These figures are a testament to the ongoing demand for VCTs by investors, boosted by the pensions restrictions and attractions of a tax-free yield, and the ability of managers to adapt to the new investment rules,” said Ian Sayers, CEO of the Association of Investment Companies.
“But most importantly this is great news for UK smaller companies which are accessing the finance and expertise they need to grow. VCTs have an excellent track record of providing scale-up capital to smaller companies, creating growth, jobs and innovation.
“The growth of smaller companies is vital for the UK’s economic success and some of the businesses VCTs support develop into household names.”
Investment statistics for the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme during the 2016-17 tax year are still awaited from HM Revenue and Customs (HMRC) and tend to lag the year end by several months.
Industry experts claim both schemes have been popular with investors.
Tax incentives for investors
Popular sectors include pubs, self-storage, high tech companies and films.
All three investments are popular with wealthy investors who have cash to spare because of government restrictions on pension contributions.
The combination of tapered pension contribution relief reducing from a maximum £40,000 to £10,000 each year plus a reduction in the lifetime allowance to £1 million has left investors looking for tax incentives from other wrappers.
SEIS, EIS and VCT are popular as they offer refunds on income tax, a shelter from capital gains tax and other incentives to investors who hold shares for a minimum of three years.