Record £1bn tax relief on venture capital trusts

Record £1bn tax relief on venture capital trusts

Jan 25, 2024

Investment in venture capital trusts (VCTs) was up significantly with £1.04bn claimed in tax reliefs as the number of investors was up by a third

The latest HMRC figures for 2021-22 showed that VCT investors claimed income tax (IT) relief on £1.04bn of investment, up from £640m claimed the previous year. This was an increase of 61% from 2020-21. Claims were made by 25,800 investors, up 32% on the previous 12 months.

The average amount invested by an individual was around £40,000, while those investing between £150,000 and £200,000 accounted for just 6.7% of all VCT investors, but 32.2% of all funds raised.

The amount of investment income tax relief claimed grew in 2021-22, reflecting the increase in funds raised by VCTs in that tax year and marking a record breaking year for the sector. The annual limit on investment which relief can be claimed is £200,000.

Commenting on the record breaking figures, HMRC said ‘this was due to a strong rebound from the Covid-19 pandemic as seen in the performance of the wider venture capital industry. Additionally, the freeze on pension allowances and the income tax personal allowance has enhanced the tax advantages of investment in a VCT and, therefore, the appeal of the scheme to investors’.

Nicholas Hyett, investment manager at Wealth Club said: ‘The trend is great news for UK start-ups, driving a 61% increase in tax relief qualifying VCT investments and significantly increasing the funding available to UK entrepreneurs through the scheme.

‘The scheme could be even better though. There are signs the £200,000 a year limit on VCT investments, unchanged for nearly 20 years, is capping the funding available to small businesses.

‘The largest VCT investors, those investing £150,000 to £200,000 a year, account for just 6.7% of investors, but 32.2% of funds raised.

‘Almost all are hitting the £200,000 a year maximum – and would potentially invest more if the scheme allowed, unlocking significant further funding for small UK businesses.

‘With economic growth and support for smaller companies a key priority for both political parties, the £200,000 limit is overdue a review.’

The VCT scheme was introduced in 1995 and is one of four tax-based venture capital schemes. VCTs raise funds for investments, normally annually, through new and/or top-up share issues to investors.