Annabel Brodie-Smith of the AIC
The Association of Investment Companies says VCT managers believe they can fill some of the gap left after the Chancellor's announcement this week that from 2014-15 tax relief will only apply to pension savings up to £40,000 annually and up to £1.25 million over a lifetime.
Annabel Brodie-Smith, communications director, Association of Investment Companies (AIC) said: "Every cloud has a silver lining. The pension changes highlight the need for effective tax planning and VCTs can provide a good tax effective supplement to pensions. It's likely that the changes will provide a boost to the VCT sector."
Patrick Reeve, managing partner at Albion Ventures LLP, said: "This cut in pension tax relief will increase the drive by many higher earners towards other tax efficient routes to build their retirement nest eggs, such as Venture Capital Trusts (VCTs). VCTs are an excellent supplement to pensions, as unlike the latter they're not subject to income tax as they are drawn down. VCTs also offer a tax free income with 30% up front income tax relief, tax-free capital growth and tax-free dividends.
"With VCTs there's no need to buy an annuity and pre-retirement you can roll up your dividend income into new shares, gaining an extra 30% income tax relief on the value of the dividend. We have already seen a steep rise in enquiries from investors looking to supplement their pension pots through VCTs."
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Ben Thompson, group marketing director, Foresight Group, said: "Given the proposed changes in the tax free pension allowances for yearly contributions and in the maximum allowance, at Foresight we are already starting to see increasing appetite from investors who appreciate the tax benefit of VCT investing, particularly in those innovative asset classes that can offer steady long-term yields over defined periods - such as Solar, Infrastructure and Energy Efficiency funds."
Paul Latham, managing director at Octopus, commenting on the cut in pension tax relief said: "The cut in pension tax relief down to £40,000 is going to hit higher earners extremely hard. It is also going to make good tax planning vitally important to an increasing number of people looking to plan for a financially secure retirement.
"We see Venture Capital Trusts (VCTs) as the simplest and most effective way for people who've lost out on pension tax relief to build up an alternative savings pot in a tax-efficient manner. VCTs are highly regulated investments that reward precisely those retirement-conscious investors who are prepared to save for the longer term."
