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EXECUTIVE SUMMARY
FUNDRAISING IS STRONG AND THERE’S A GOOD INVESTMENT CASE
LOWER PENSION LIMITS MEAN THAT MORE ADVISERS ARE CONSIDERING VCTS
PENSION FREEDOMS COULD HAVE A SIMILAR IMPACT
Three events have shaped the picture of historical fundraising into VCTs: the bear market in the early 00’s after the dot com boom,
the bear market after the financial crisis in 2008 and the “boost years” of 2005-06 when the upfront Income Tax relief available to
investors was lifted to 40%. If you can ignore those three events though, the picture is one of steady and consistent growth. We
think this is a sign of a healthy industry that is here is to stay. We look at the growth and development of the VCT market on page 21.
The new pension freedoms that came into
effect this year may mean that many more
investors defer buying an annuity and use
a drawdown solution. This will undoubtedly
mean that other sources of tax-free
income will be welcome to supplement the
(taxable) income from the pension pot and
preserve the capital left in there. Tax-free
dividends are perhaps VCTs strongest selling
point - the current average yield is over 8%
according to the AIC.
We cover how they can be used to develop
tax-efficient decumulation strategies on page
44. The changes to the way dividends are
taxed, announced in the July Budget, may
also make VCTs relatively more attractive.
VCT FUNDRAISING SINCE INCEPTION
(1996–2015)
OPTIONS AT RETIREMENT POST PENSION FREEDOMS
0
100
200
300
400
500
700
600
800
900
1996 1997 1998 1999 2000 2001 2002 2003
2006
2009
2012
2004
2007
2010
2013
2005
2008
2011
2014 2015
160 170 190 165
270
433
125
65
779
156
330
50
267
343
402
505
219
364
438 429
Source: AIC (2015)
We’ll look at the impact of changes to the
pension limits and what they mean for
investors on page 42. But what is clear is
that a number of investors are going to
max out what they can save in ISAs and
pensions, and are therefore going to look
to their advisers to find other tax-efficient
investments such as VCTs.
Pensions limits have been decreasing for some time
VCT Fundraising has been consistent and growing steadily since the 2009 recession
The “Pension Freedoms” announced in the 2014 Budget may require more sophisticated investment planning
AMOUNTS THAT CAN BE SAVED INTO PENSIONS BY TAX YEAR
ANNUAL ALLOWANCE
LIFETIME ALLOWANCE
Source: HM Treasury
2016/2017
2015/2016
2014/2015
2013/2014
2012/2013
£1 MILLION
£1.25 MILLION
£1.25 MILLION
£1.5 MILLION
£1.5 MILLION
£40,000
£40,000
£40,000
£50,000
£50,000
PENSION POT
FULL
WITHDRAWAL
(AT MARGINAL
RATE)
ANNUITY
DRAWDOWN /
OTHER PRODUCTS
UNCRYSTALLISED
FUNDS PENSION
LUMP SUM
25% TAX-FREE
LUMP-SUM
£ Millions