Investors are on course to put a record amount of money into trusts that provide 30pc income tax relief, but capacity in the sector is falling dramatically.
Around £250m has been invested in venture capital trusts (VCTs) so far this tax year – up 4pc on 12 months ago. Since the election more than £60m has piled into the tax-efficient investments, which appeal to those who have already filled up pensions and Isas.
VCTs are funds listed on the stock exchange that provide a 30pc tax break in return for investing in riskier small and private companies. Investors can allocate up to £200,000 every tax year, although the investment must be held for five years.
However, the tax break only applies to new launches or share issues. Annabel Brodie-Smith of the Association of Investment Companies, a trade body, said demand from investors meant the amount invested would easily match last year’s near-record figure.
Demand is expected to increase as the end of the tax year approaches. Alex Davies of Wealth Club, a VCT shop, recommended Octopus Titan, the largest fund available. The £825m trust has raised £64m so far this year but only has £56m remaining capacity.
It has been a top performer, with a history of owning high-profile companies such as Zoopla, the property listings website.
Established businesses such as Secret Escapes, a travel members’ club, and Calastone, a fund trading platform, are mixed with newcomers such as Depop, an online marketplace for vintage clothing. Cazoo, a second-hand car exchange set up by Zoopla founder Alex Chesterman, is another holding.
Jason Hollands, of fund shop Bestinvest, favours the £131m Amati Aim VCT, which specialises in buying stocks listed on the alternative investment market (Aim). The fund is wants to raise £25m before April and is already a third of the way there.
The portfolio has 66 holdings and owns Amati UK Smaller Companies, a top-performing fund. It also owns engineering firm AB Dynamics and hospital billing software provider Craneware. A more recent investment is Cloudcall, a telephone tech firm.