MARKETS & INVESTING

VCTS OFFER DIVERSIFICATION BENEFITS , SINCE PRIVATE , SMALLER COMPANIES CAN BE FLEXIBLE AND ADAPT QUICKLY IN CHALLENGING MARKET CONDITIONS .

An important part of an adviser ’ s proposition VCTs give clients access to a portfolio of earlystage , private companies with high growth potential , while enabling them to claim upfront income tax relief ( worth 30 % of the amount invested , up to an investment of £ 200,000 ), earn tax-free dividends and exemption from capital gains tax on the sale of VCT shares . Not so long ago , it was typical for an adviser to recommend a VCT to just a couple of their most wealthy clients . But today , the demographic for VCT investing is broader and the average investment amount has reduced . We work with advisers who now have a much broader proportion of their client bank invested in VCTs . Typical VCT investors are high earners and tend to make these investments annually as part of their planning , similar to utilising their ISA allowance . This leads to long-term reoccurring advice to ensure the planning is still suitable .

A great diversifier Often clients have limited exposure to early-stage businesses in their existing range of investments . VCTs offer diversification benefits , since private , smaller companies can be flexible and adapt quickly in challenging market conditions , meaning a VCT ’ s performance can be less correlated to main markets . Dr Brian Morretta , Head of Tax-Enhanced Services at Hardman & Co , believes advisers should be considering VCTs for everyone in their client bank , even if it is then to discount them , because VCTs can add diversification benefits . “ Adding venture capital can lead to better outcomes and many clients could be underweight in venture capital – even for medium risk investors , a low to mid-teens weight will be appropriate .” Under Consumer Duty , advisers are obligated to consider all available solutions for their clients . So considering VCTs not only helps them achieve greater diversification , but can improve the likelihood of delivering good outcomes .

More clients could benefit than you think The tax changes in recent years have resulted in business owners who pay themselves dividends facing higher income tax bills . VCTs could be a way to offset this tax and help extract money from a business tax efficiently . Likewise , some clients who own rental properties have turned to VCTs . They offer landlords a way to offset their tax on rental income and invest that income tax-efficiently .

Bear in mind the risks It is important that your clients understand the risks before they make a decision to invest . VCT shares are high risk , their share price may be volatile and they may be hard to sell . The value of a VCT investment , and any income from it , can fall as well as rise , and investors may not get back the full amount they invest . Tax treatment depends on individual circumstances and may change in the future . Tax reliefs depend on the VCT maintaining its VCT-qualifying status . Clients will also need to be comfortable holding the shares for at least five years in order to keep any income tax relief they have claimed .

A driver for new business As the largest manager of VCTs1 , Octopus is well placed to help you discover how they can benefit your clients .

Visit octopusinvestments . com / vct to explore resources to help you get to grips with VCTs .

1 By Funds under management , The Association of Investee Companies , June 2023 .

VCTs are not suitable for everyone . Any recommendation should be based on a holistic review of your client ’ s financial situation , objectives and needs . This communication does not constitute advice on investments , legal matters , taxation or any other matters . Personal opinions may change and should not be seen as advice or recommendation . Issued by Octopus Investments Limited , which is authorised and regulated by the Financial Conduct Authority . Registered office : 33 Holborn , London , EC1N 2HT . Registered in England and Wales No . 03942880 . Issued : August 2023 . CAM013218 .

For professional advisers and paraplanners only . Not to be relied on by retail clients .

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