Robust demand for tax-efficient VCTs continues

Appetite for tax-efficient investments remained strong last year, with venture capital trusts reporting their largest inflows for almost a decade.

Wealthy investors ploughed an estimated £429m into the vehicles for small company investment in the 2014-15 tax year, according to figures from the Association of Investment Companies, an industry body.

While only marginally higher than in the previous year, it represents the most raised since 2005-06, when tax reliefs for investors - a major attraction of VCTs - were greater.

Ian Sayers, AIC chief executive, described it as a "particularly strong" year for VCT fundraising, which will have benefited from the reduction in annual and lifetime tax-free pensions allowances last April.

Jason Hollands, managing director of Tilney Bestinvest, said that while demand for VCTs should remain strong, prospective investors may encounter capacity constraints this year.

Following two years of successful fundraising, Mr Hollands said that managers will be careful not to accept too much money, as government rules mean they must invest at least 70 per cent of new capital within three years.

Last tax year, two of the largest VCT managers - Northern Venture Trust and Living Bridge (formerly called Isis Equity Partners) - were virtually absent from fundraising, citing sufficient funds.

Meanwhile tighter investment rules, announced in last month's Budget, have been imposed on VCT managers to ensure the regime complies with EU state aid rules.

To qualify, companies must be less than 12 years old on their first VCT investment, and can receive no more than £15m via venture capital schemes - which also include the enterprise investment scheme - rising to £20m for what the government describes as "knowledge intensive" companies.

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