Providing essential tax relief This year, tax and pension planning will undoubtedly be two key issues influencing investors. Even before the Chancellor’s Autumn statement, which raised the UK’s tax burden to its highest level since Clement Attlee’s post-war government, a series of restrictions on pensions has forced many savers to look for alternative tax-efficient options for their capital.1 Indeed, the government’s decision in the Spring of last year to reduce the lifetime allowance on savers’ pensions and lock it at this level until 2026 will see any remaining excess in pensions pots subject to a 55 per cent tax penalty. Venture Capital Trusts (VCTs), such as Triple Point’s Venture Fund VCT, can provide investors with a crucial investment and supplementary pension tool. This comes at a time when the government is raising record revenues from taxpayers, thus making it critical that investors put their money to work effectively. The tax-free dividends offered by VCTs, alongside no capital gains tax (CGT) on gains, make them an attractive alternative source of tax-free income, which can complement a traditional pension portfolio. Furthermore, over the last ten years, the average net asset value total return for both AIM VCTs and generalist VCTs has been 101%, making VCTs not only a tax-efficient vehicle but also a competitive investment product in its own right.2 Thinking beyond 2023 However, it is not enough to merely focus on the tax situation this year. Many investors will find their tax-free allowances and thresholds squeezed by 2024 if they don’t act now. With the tax-free dividend allowance being reduced to £1,000 in 2023 and £500 from April 2024, VCTs remain one of the most taxefficient investments by allowing investors to claim upfront tax relief worth 30% of the amount invested, up to an investment of £200,000. For business owners who have traditionally reduced their income tax liability by investing large sums into their pension or paying themselves dividends, these changes can have a devastating impact on their financial and pension planning if they are not addressed. By investing in a VCT, business owners and other investors who have used dividends as a vital source of income can significantly reduce their financial exposure to the costly shifts in the UK’s tax and pension planning regulations, which look likely to occur over the next decade. Selecting the right strategy To truly capitalise on the benefits of VCT investment, investors and savers should look to invest in VCTs that they think have the best strategy. With over 20% of start-ups failing within the first five years, implementing the right investment plan can help mitigate the risks that come with investing in early-stage companies.3 A successful VCT strategy should follow a key investment criterion ensuring that each early-stage company has an appetite for growth and a path for long-term profitability. This involves working alongside VCTs to solve real-world corporate challenges. For example, Strategic VCT investments enable innovation in young companies, helping create local and highly skilled jobs while allowing the investor to back high-quality and better-capitalised companies with lower valuations. Triple Points Venture Fund VCT, for example, adopts a challengeled approach to investment which “The tax-free dividends offered by VCTs, alongside no capital gains tax (CGT) on gains, make them an attractive alternative source of taxfree income, which can complement a traditional pension portfolio.” Inve s tmen t 64 Finance Monthly.
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