Starting early for tax year end investments

Venture Capital Trusts have started their fundraising for 2019/20.     

There was a time when tax year end planning didn’t begin until well after the New Year festivities were over and a March Budget was nearing. This rhythm has now shifted. The last months of the tax year are still important, as they are the point at which you should have a reasonable idea of your total income in the year. But Philip Hammond’s move to an Autumn Budget from 2017 means that there is now more focus around this time of year, rather than post-Christmas. Although 2019 has become an aberrant year in many ways, including the postponement of Chancellor Sajid Javid’s planned Budget in November, business as usual on year end planning continues.

The seasonal switch is particularly noticeable in terms of Venture Capital Trust (VCT) offerings. VCTs allow you to invest in a basket of small, unquoted companies with the aim of helping them grow and develop. The high-risk nature of fledgling companies means VCTs come with significant incentives and have grown in popularity in recent years. In 2018/19 the highest amount ever was raised at the current level of tax relief.

There are three main reasons for the increased interest:

  • Tax reliefs
    VCTs offer 30% up-front income tax relief, tax-free dividends and freedom from capital gains tax.
  • Pension allowances
    Although the lifetime allowance is now index linked, it and the unchanged rules on the annual allowance act as increasing constraints on pension contributions. The highest earners cannot now contribute more than £10,000 a year to their pension with full tax relief.
  • Aversion to avoidance
    HMRC’s anti-avoidance armoury has been much strengthened in recent years, witness the problems faced by some tax-avoiding celebrities. The public attitude has also moved to the point that being associated with aggressive tax avoidance is bad PR.

There was an initial autumnal rush for VCTs in 2017 at the first of the current crop of Autumn Budgets, ahead of widely anticipated reform of the VCT rules. This year many VCTs have already started their fund-raising for 2019/20 or announced the intention to do so shortly. Some of this may have been in anticipation of the 2019 Budget, although there were no significant changes expected. The spectre of an imminent general election, now confirmed for 12 December, may also have encouraged an early start.

If you are considering VCT investment in this tax year, please do not wait until February. By then you may not have very much choice left. 

Venture Capital Trusts (VCTs) invest in assets that are high risk and can be difficult to sell.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax or trust advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.