Investment into Venture Capital Trusts and Enterprise Investment Schemes fell in 2024, new data shows.
Figures from HM Revenue & Customs show that in 2023/24, VCT investment declined by 17% to £873 million compared to the previous year’s figure of £1,051 million.
Meanwhile, funding in EIS fell by 20% from £1,971 million in 2022/23 to £1,575 million in 2023/24.
Jason Hollands, managing director at Evelyn Partners, said: “The decline is not surprising. The period in question was a very tough time for smaller companies, impacted by rising costs and higher interest rates and a broader flight away from UK assets.
“More recently, and likely to be reflected in next year’s statistics, companies have had to contend with rising employment costs, e.g National Insurance increases and the economic uncertainties facing both the UK domestic and global economy.”
Hollands said another likely factor in the decline in VCT and EIS funding is the scrapping of the pensions lifetime allowance and increase in the pensions annual allowance, allowing higher earning individuals looking for income tax relief to return to pension investing.
“Pensions can invest in mainstream assets and investors can achieve a higher rate of income tax relief, at the marginal rate, on their subscriptions of up to 45% in the case of additional rate taxpayers. VCTs and EIS, however, provide income tax relief of 30%,” he explains.
With the Government keen to see more money funnelled into UK assets, following the announcement of the Mansion House Accord, Holland said a “quick win” would be to increase the tax reliefs on VCTs and EIS.
The annual amount that can be subscribed to VCTs has languished at £200,000 for 20 years, but the impact of inflation means that this has been eroded and should be doubled, says Holland.
“The real game changer would be to close the gap between the income tax credits on these schemes with the more generous tax relief that can be achieved by subscribing to pensions. The experience of history clearly shows how changes in the level of income tax credits on VCTs have a massive impact on investor behaviour. Isn’t it time Chancellor Reeves tried more of a carrot than stick approach and revitalised these schemes.”
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