Total VCT sales raise £685m– Alex Davies, Wealth Club, comments on this “incredible total”

Venture Capital Trusts raised £685m in the 2020-21 tax year – 11% higher than the £619m in the previous year – and the third highest amount since tax relief was established at 30% in 2006, despite the disruption of the coronavirus pandemic, according to the AIC’s figures released today.

The biggest sellers were Octopus Titan (£120m), followed by Octopus Apollo (£65.5m) and Baronsmead (£65m).

Alex Davies, CEO of Wealth Club, comments: “It’s quite an incredible total given much of the financial year was shrouded by the uncertainty of the pandemic, and sales were slow to kick off as a result. However, as the initial panic eased, demand from experienced investors looking for tax efficient ways to grow their money surged which meant many of the established offers sold out well before the tax year end.  On the Wealth Club platform alone, VCT investment was up 55% on last year, from £79.2m to £122.7m.

“It’s likely that sales would have been even higher had there not been limited capacity in the market. Potential capacity this year was down 7.5% on last year, and a number of popular VCTs were raising less than previously, or not raising at all.

“Of those that were available, the Amati AIM VCT sold fastest, reaching capacity in a matter of hours and resulting in investors’ subscriptions having to be scaled back. AIM VCTs were in particularly high demand with £101m raised across four offers – 38% more than last year.”

What is driving demand?

Davies continues: “Fiscal pressure on wealthier investors is at level not seen since the ‘70s. Restrictions on pensions and buy-to-let and increased tax on dividends mean it is much harder for people to invest tax efficiently than it was previously. VCTs are one of the last relatively simple and tax efficient investment options left.

“VCTs are also becoming a very attractive asset class in their own right. They give investors the opportunity to invest in fast growing early-stage businesses which have the potential to be tomorrow’s winners. In general, the pandemic has been kind to such businesses, and VCT performance has held up well through the crisis with many VCT NAVs back to pre-pandemic levels or over.

“Notable exits this year from VCTs include Virgin Wines and meal delivery services Parsley Box and Pasta Evangelists. In addition Cazoo, an Octopus Titan VCT investee company, saw its valuation rise to a reported £5bn after announcing its intention to merge with a Special Purpose Acquisition Company (SPAC) in the US.”

What is the future like for VCTs?

The freezing of the pensions lifetime allowance in the most recent budget, plus their growth potential, means VCTs are likely to only get more popular.

Recent Wealth Club analysis looked at the growth rate of companies within ten of the top VCTs, and the growth rate of the 350 largest UK listed companies, and the results were striking:

• 46% of the invested assets in these VCTs had grown by 25% year on year on average. By comparison just 4.6% of the largest 350 companies achieved this.
• 22.5% of the invested assets in these VCTs had grown revenues by over 50%, compared with just 2% for the largest 350 companies