65% of wealthy investors expect to increase exposure to venture capital schemes as a result of upcoming tax rules

65% of wealthy investors expect to increase exposure to venture capital schemes as a result of upcoming tax rules

Over two-thirds of wealthy investors intend toinvest more into tax efficient investments, such as Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) and its younger sibling the Seed Enterprise Investment Scheme (SEIS), as a result of the onerous modern tax increases coming in from next month. This is according to a survey of 1,300 high-net-worth investors who are members of Wealth Club.

modern tax rules applicable from 6th April 2023 mean that higher earners will be hit by a series of punitive tax changes including:

The lowering of the additional rate tax threshold from £150,000 to £125,140.
The Capital Gains Tax allowance dropping from £12,300 to £6,000 (and to £3,000 in 2024).
The reduction of Dividend tax free allowance from £2,000 to £1,000 (and then £500 from 2024).

Just 5% expect to invest less, supporting the notion that, for most investors, it’s tax incentives that remain the main driver behind the ongoing success of the three venture capital schemes in the UK  – VCTs, EIS and SEIS.

Of those who responded to the survey 56.4% said they would be investing in VCTs, 26.78% in EIS and 14% in SEIS.

Alex Davies, CEO of Wealth Club, the UKs largest broker of VCTs, EIS and SEIS said: “The results of our survey exhibit that the next few years are likely to be bumper years for EIS, SEIS and VCTs in particular, as investors inspect to shield some of their hard-earned money from what is arguably the harshest tax environment since the 1970s.

Whilst April’s punishing tax rises are sinful news for investors’ pockets, there is at least a silver lining for UK PLC.  Currently around £2.5 billion is being pumped into VCTs, EIS and SEIS annually. If two thirds of investors increase their contributions as a result of more restrictive tax changes that will  – by accident rather than design  – deliver a massive cash injection to British start-ups, which is noteworthy news for jobs and economic growth.

Venture capital schemes such as VCTs, EIS and SEIS are an extremely tax efficient way for more experienced investors to invest for their future. When you invest you secure income tax relief of between 30% (VCTs and EIS) and 50% (SEIS). Returns are also tax free.

But it’s not just about the tax relief. Through these schemes investors can access young, quick growing, entrepreneurial companies which acquire the potential to offer high returns as well as acting as a diversifier to a mainstream portfolio of funds and shares.”