High demand
Most large retail offerings for this tax year were launched before Christmas and those offerings are already filling up fast. Our research suggests that more than 50 per cent of VCT offerings have now been filled. Availability is likely to dry up by mid-February, much earlier than in previous years, so early planning is recommended.
Track record
Venture capital houses can now boast five to 10 years' worth of track record, with returns that include initial tax relief averaging about 8 per cent for the asset-backed marketplace and about 10 per cent for the pure venture capital providers. Over this period, we have seen new household names prosper from VCT and EIS beginnings. Zoopla and Graze are two that spring to mind in the business-to-consumer space.
Rising risks
These returns were generated at a time when the British economy was undergoing a multi-year recovery after the global financial crisis. Asset prices were supported by the Bank of England interest rate policy and quantitative easing. Any successful venture capital investment needs a stable economy in the same way as listed securities. It might not have always felt like it, but that is what the UK has undergone since the crisis. Looking ahead, I wonder whether we are likely to see further increases in asset prices in the same way as we have seen since 2009. At some stage, the economy is likely to be affected again by Brexit concerns.
There is huge interest in the disruptive technology space this year, from entrepreneurs and investors alike. It feels as though a bubble, not unlike the tech bubble of 1999, is growing. Not all of the potential disruptive technology companies seeking funding will succeed and it is very difficult for professional and amateur investors alike to know which ones will go on to be a success.
VCT and EIS
The venture capital trust (VCT) scheme was introduced on 6 April 1995 and was designed to encourage individuals to invest in smaller companies. VCTs are themselves listed on the London Stock Exchange and provide capital finance for small, expanding companies with the aim of making capital returns for investors. Money raised from individual investors is pooled by the VCT to acquire a number of different investments, with the aim of spreading the risk across the VCT’s portfolio. Investors must hold these investments for at least five years.
The enterprise investment scheme is the latest in a series of UK tax reliefs launched in 1994 in succession to the business expansion scheme. It is also designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom. For investors, they are a tax efficient way to invest into smaller companies. Investors must hold these investments for at least three years.
