Key Takeaways
- • Research from Wealth Club finds 36% of wealthy investors would be more likely to invest in Venture Capital Trusts (VCTs) if further tax rises occur, with 27% saying the same of Enterprise Investment Schemes (EIS) and 21% of Seed Enterprise Investment Schemes (SEIS).
- • Wealth Club founder and CEO Alex Davies argues that the government's cut in VCT income tax relief from 30% to 20% has already damaged fundraising, with the three most popular VCTs to open since September each raising at least 70% less in their opening days than at the same stage last year.
- • Davies contends that higher taxes discourage spending, saving and investment, and that restoring VCT income tax relief to 30% would be a more effective way to direct capital to smaller British businesses than raising taxes.
Summary
New research from Wealth Club indicates that wealthy investors may turn to tax-advantaged venture capital schemes as a hedge against further tax increases in the upcoming budget. According to the survey, 36% of respondents said further tax rises would make them more likely to invest in Venture Capital Trusts, while 27% said the same about Enterprise Investment Schemes and 21% about Seed Enterprise Investment Schemes. All three schemes offer tax incentives to encourage investment in smaller British businesses.
Alex Davies, Founder and CEO of Wealth Club, said the potential shift in investor behaviour could offer a silver lining for British start-ups. However, he cautioned that higher taxes are not a positive development, arguing they discourage spending, saving and investment, and that investors do not gain additional capital when taxes rise. Investors, he said, are simply seeking ways to protect the wealth they have left.
Davies pointed to the government's reduction of income tax relief on VCT investments from 30% to 20% as a significant setback. He said the three most popular VCTs to open since September had each raised at least 70% less in their opening days than at the same stage the previous year. He described this capital as money that would otherwise flow into smaller British companies, many of which struggle to raise funding.
Davies recommended that the Chancellor restore VCT income tax relief to 30% as a more effective means of increasing investment in smaller businesses than raising taxes, which he said risks reducing economic demand. He called for clearer policy thinking on supporting the UK's start-ups and scale-ups.
Alex Davies, Founder and CEO of Wealth Club, said the potential shift in investor behaviour could offer a silver lining for British start-ups. However, he cautioned that higher taxes are not a positive development, arguing they discourage spending, saving and investment, and that investors do not gain additional capital when taxes rise. Investors, he said, are simply seeking ways to protect the wealth they have left.
Davies pointed to the government's reduction of income tax relief on VCT investments from 30% to 20% as a significant setback. He said the three most popular VCTs to open since September had each raised at least 70% less in their opening days than at the same stage the previous year. He described this capital as money that would otherwise flow into smaller British companies, many of which struggle to raise funding.
Davies recommended that the Chancellor restore VCT income tax relief to 30% as a more effective means of increasing investment in smaller businesses than raising taxes, which he said risks reducing economic demand. He called for clearer policy thinking on supporting the UK's start-ups and scale-ups.
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