The reductions in the pension lifetime allowance to £1 million and in the annual contribution allowance to a maximum of £40,000 have caused some more affluent clients to consider alternative tax-efficient types of investment, and in particular Venture Capital; Trusts (‘VCTs’).
Whereas pension contributions currently offer income tax relief at the investor’s highest marginal tax rate, VCTs offer 30% relief subject to being held for at least 5 years. In addition, like pension savings, VCT investments provide tax relief on both dividends and capital growth. The maximum permitted investment is £200,000 per tax year.
Most VCT managers market their latest products in the early autumn, but the extra demand from pension savers and new restrictions on the types of company in which VCTs are permitted to invest suggest that demand might exceed supply this year.
It should always be remembered, however, that the reason why the government offers special tax breaks on VCTs is that the companies in which they invest are relatively high risk.