The Autumn Statement and its impact on Venture Capital Trusts

Tax hikes were clearly signalled ahead of Jeremy Hunt’s first Budget as Chancellor. Given the Office for Budget Responsibility’s raised forecast for the UK’s budget deficit and projected £55 billion fiscal black hole, it comes as no surprise that Mr Hunt delivered on that expectation.

The decision to freeze the pensions allowance while lowering the threshold for the top rate of income tax from £150,000 to £125,140 will have a notable impact on high earners planning their financial future, as will the cutting of tax-free allowances on dividends from £2,000 to £1,000, and capital gains tax from £12,300 to £6,000, both from April 2024. This confirms, as suspected, the value of tax efficient products as investors look to protect their capital.

A positive note is that the previously announced extension of the VCT scheme past 2025 remains unchanged, reinforcing the importance of these vehicles in supporting the UK’s vital SME community in such a volatile economic climate. “The government remains supportive of EIS and VCTs and sees the value of extending them in the future. The government will also continue to champion institutional investment into innovation so that UK savers can benefit from the growth of high potential businesses”, said Mr Hunt.

VCTs look set to continue playing a vital role in providing a tax-efficient investment option for investors, offering a flexible option to complement pensions in financial and retirement planning. New VCT investment is not subject to a lifetime limit, and offers 30% initial tax relief on such investment, providing the potential to build substantial holdings capable of generating a tax-free income stream. They also pay dividends tax-free and are exempt from CGT on gains.

With more people likely turning to this type of tax efficient investment, this will in turn help support entrepreneurs and small business owners across the country, particularly as we enter a recession. Continued investment in VCTs helps finance young, high growth businesses, spurring innovation and job creation, and ultimately will help support the wider UK economy through these challenging times.