The UK government launched Venture Capital Trusts (VCTs) with a bold vision: make investing in small, entrepreneurial companies more attractive by offering tax incentives, and in return, unlock the funding these businesses need to thrive.
We’re now 30 years on and the results speak volumes. VCTs have delivered more than £12 billion in funding to start-up companies.1 Numerous of these have gone on to become household names – the likes of Depop, Graze and Zoopla.
Through investing in smaller companies, VCTs have supported job creation, supercharged innovation and boosted the British economy.
Octopus has proudly played its part in this, becoming the largest provider of VCTs in the market2 by working with financial advisers to help clients invest tax-efficiently in UK businesses. We’ve backed hundreds of businesses to date and continue to see intense demand for VCTs, which is promising news for UK entrepreneurship.
The extension of VCT legislation until 2035 provides long-term stability for investors.
With higher capital gains tax rates, reductions in dividend and savings allowances, and changes to pension tax rules, VCTs have become an attractive option for tax-efficient planning. As a result, financial advisers are increasingly incorporating VCTs into their clients’ planning strategies for their tax benefits and investment diversification. But this is one half of the story. The other half is a story of a market evolving to deliver a great deal of nuance and choice to investors.
After 30 years, there are now plenty of VCTs in the market. Each has its own approach and points of difference.
It’s not unusual to see 40 or more VCTs raise funds in a tax year. And at the most fundamental level, all of these will invest in a portfolio of early-stage UK companies. But as any financial adviser familiar with VCTs will know, every VCT will have its own unique mandate and approach, offering something different to investors.
This is a win for investors because they can build a portfolio of VCT investments whereby capital is spread across a diverse range of underlying investments. As with any kind of diversification, this gives greater confidence that wealth will grow over the long term while spreading risk. If a particular sector or company is underperforming, while others are performing better, the ups and downs are smoothed out.
But with such a wide array of choices, how can an adviser ensure they are selecting the ‘right’ VCT for their client?
This is where the importance of relying on a trusted brand comes into play. Octopus offers a range of VCTs which vary significantly in their mandates, but each is supported by the strength of the Octopus infrastructure and team, providing advisers and their clients with confidence in their investment choices.
The Octopus range includes Titan VCT which invests in tech-enabled businesses with high growth potential, Octopus AIM VCTs focus on companies listed on the Alternative Investment Market. Future Generations VCT targets businesses aiming to build a sustainable planet, empower people, or revitalise healthcare and Apollo VCT stands out by investing in business-to-business software companies that have successfully brought their products to market and are seeking capital to accelerate growth.
Due to strong demand, the Board of Apollo VCT recently announced that they have added £25 million of fundraising capacity to its original £50 million. This strong demand reflects the confidence investors have in Octopus as a trusted brand.
After three decades, the VCT market has matured into one where there is an investment right for any suitable client looking diversify their portfolio. We look forward to supporting the growth of the market and UK businesses for the next 30 years. If you’d like more information, you can compare Octopus VCTs.
Bear in mind the risks of investing in a VCT
The value of an investment, and income from it can fall as well as rise. Investors could end up getting back less than they invest.
VCT shares are by their nature high risk, their share price may be volatile and they may be hard to sell.
Tax treatment depends on individual circumstances and tax rules could change in the future.
Tax reliefs depend on the VCT maintaining its qualifying status.
1Venture Capital Trusts statistics: 2024 – GOV.UK
2 By funds under management. The Association of Investment Companies
