Venture capital trusts are primarily being used to help investors save for retirement, new research from the Association of Investment Companies has shown.
Three fifths (60%) of investors are using VCTs as a vehicle to save for retirement, with the typical investor placing 13% of their portfolio in VCTs.
The research showed a wide range of attitudes to risk among VCT investors, with 48% considering themselves as medium-high risk investors, while a further 14% consider themselves as high-risk investors. However, 28% of VCT investors classify themselves as medium-risk and 10% as cautious.
Tax breaks offered by VCTs were found to be the key driver for many investors, the AIC said. Nearly four-fifths of investors (79%) cited tax breaks as the primary reason they invest in VCTs, with 55% choosing those because of the 30% upfront tax relief and 28% rating the tax-free dividends as the most important factor. Only 8% of respondents said they would still invest in VCTs if the upfront tax relief was removed and only 16% would still invest if the advantage of tax-free dividends was removed.
Similarly,the same percentage (79%) say the growth potential that comes from backing young companies early is another reason they invest. More than half (55%) of VCT investors cite supporting innovation as a factor and the same number (55%) invest in VCTs to support UK entrepreneurs.
VCTs invested £650 million in UK small businesses in 2022, up 21% on the previous year and there was a general consensus among investors that the current economic outlook in the UK and the possibility of a recession makes supporting smaller UK businesses more important, with more than three quarters (76%) agreeing.
