Despite a fall in the amount of Venture Capital Trusts (VCTs) managing funds, the amount of new capital brought in during 2013-2014 climbed by 10 per cent.
As part of yearly figures released by the government, which are generated from a number of sources, a total of £440 million of VCT fundraising has been recorded for the period between 6 April 2013 and 5 April 2014.
Since being introduced by a Conservative government in 1995, the VCT scheme has encouraged individuals to invest directly into a range of unquoted smaller, higher-risk trading companies. VCTs are listed on a UK stock exchange and are exempt from corporation tax on any capital gains arising on disposal of investments.
For a company to qualify for VCT investment, it must have less than 250 full-time staff and possess growth assets not exceeding £15 million before, or £16 million immediately after, investment.
Other tax reliefs available include income tax relief at the rate of 30 per cent up to £200,000 annual investment and no income tax payable on dividends.
The £440 million raised during 2013-14 is the fourth highest amount raised in a year ever, second only to 2005-06 (£780 million), 2004-05 (£520 million) and 2000-01 (£450 million). The record highs seen between 2004 and 2006 were a reflection of an increase to 40 per cent on the rate of income tax relief, a number which came back down to 30 per cent in 2006.
The number of VCTs managing funds in the 2013-14 year, however, has dipped to a level not seen since 2003-04. While last year there were 118 in operation, government figures show that 97 are currently managing funds.
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Recent key policy changes in the way VCTs are operated saw an extension of the amount of people working at a qualifying company, as well as gross assets held, beginning in April 2012. From April 2014, VCTs could then no longer return share capital to investors within three years of the end of the accounting period in which the VCT issued the shares.
Earlier in September, Octopus Investments, which scooped VCT of the Year at the GrowthBusiness Investor Allstar awards this week, launched a £20 million fundraising for AIM VCTs.
Speaking then, Andrew Buchanan, joint fund manager of the Octopus AIM VCTs, said, ‘AIM Is home to a wide range of exciting and dynamic companies and leads the world as a market financing smaller companies.
‘Recent changes to tax legislation by the UK government have enhanced AIM’s already established position as a vital source of equity finance for small growing companies and consequently we anticipate the recent strong flow of VCT qualifying new issues to continue over the next year at least.’