Latest VCT stats show a rise in tax relief claimed

The constraints imposed on pension contributions by the annual allowance and the rising numbers of higher rate taxpayers have prompted a growing interest in Venture Capital Trusts (VCTs).

HMRC has published VCT statistics* showing the number of investors claiming income tax relief on their VCT investments and amounts invested.

According to the statistics, the amounts claimed as tax relief grew substantially in 2021/22. Amounts claimed as tax relief are reported with a one-year time delay due to the nature of the self-assessment reporting system:

• In 2021/22, VCT investors claimed income tax relief on a record breaking £1,040 million of investment. This is an increase of 61% from 2020/21. This is in line with the record breaking 68% increase in the amount of funds raised by VCTs in 2021/22 compared with the previous year.
• The number of VCT investors who claimed income tax relief increased by 32% to 25,800 in 2021/22.
• Most investors tend to invest under £50,000 into VCT funds. The average amount invested by an individual in 2021/22 was around £40,000.

To improve the quality of this publication, HMRC says that it has taken the decision to delay a part of the publication of statistics on the amount of funds raised by VCTs, the number of VCTs raising and managing funds. This is to take advantage of utilizing HMRC administrative data in the production of these statistics. It is expected that publication will take place in May 2024 and publication will include the above-mentioned statistics along with the statistics that have been included in this publication.

Subject to a generous annual subscription limit of up to £200,000, VCTs offer the potential of:

• income tax relief at 30% on investment in new shares, regardless of the investor’s personal tax rate;
• freedom from capital gains tax (CGT) on any profits; and
• tax-free dividends.

The 0% £1,000 dividend tax band is still fairly generous from the viewpoint of an investor who pays tax above the basic rate, however, its reduction to £500 from 6 April 2024 is likely to cause more of their dividends to become taxable in the future, making the prospect of tax-free dividends from a VCT even more attractive.

While VCTs offer attractive tax reliefs, they should not be regarded as an alternative to pensions for retirement planning. However, for clients who are restricted in the amount of pension funding that can make, or those that have a higher appetite for investment risk and are seeking an alternative investment opportunity VCT’s can be a great addition to an holistic financial plan.

At TPO we have decades of experience in advising clients on investing into VCT’s and other tax privileged products such as Enterprise Investment Schemes and Business Relief qualifying investments. 

If you would like to know more about these types of products and how they can enhance a financial plan please speak to your usual TPO Adviser or request a copy of our brochures; 'Alternative Investing Guide' and 'Tax Planning Strategies for High Income Earners'.

The Financial Conduct Authority (FCA) does not regulate tax advice. 

This information is correct as at 19/02/2024.

*Source: https://www.gov.uk/government/statistics/venture-capital-trusts-2023