From the tranquil Lake District to the hustle and bustle of Leeds, Manchester and Liverpool, the North of England is one of the most varied parts of the UK.
The varied northern landscape is also reflective of the region’s thriving early-stage businesses, which along with the region’s tech and life sciences sectors are growing more and more diverse.
At the same time, frozen income taxes are set to push over 1.5m UK residents into higher tax bands by 2027, with a further 301,000 becoming additional rate taxpayers. Exemption limits for dividends and capital gains tax are also set to halve this April and again the following year, meaning many will have to change tact.
At a time when demand for tax efficient investments is high, both adviser and investor are becoming more intrigued by the North’s potential for capital returns.
The North’s early-stage business landscape is coming into its own
It’s no secret that the number of early-stage businesses in the North is growing, with our research showing that 73% of founders believe it’s become more attractive to start a business outside of London in the last decade.
Motivated by lower costs, an abundance of graduates from top universities, a supportive public sector, and the post-covid migration of talent from London to other parts of the UK, more and more early-stage businesses are deciding to stay put in the North.
But instead of being limited to one or two specialisms, growth has been evident in fintech, AI, CleanTech, blockchain, cybersecurity and life sciences, with breakout Northern businesses like Matillion, Modern Milkman and Peak leading a charge. These success stories are then filtering talent and capital back into their home-grown ecosystems and so offering support to the next generation of start-ups.
According to the Department of Culture Media & Sport, 2022 even saw Manchester’s tech sector alone raise a record £532m in funding, putting the city above Lisbon, Warsaw and Rome.
The high-growth business database Beauhurst also reports that 1,101 equity investment deals were agreed in the North in 2022 – doubling 2013’s count.
But finding the funding remains a challenge for businesses in the North
Unfortunately for businesses up North, London still undeniably wears the crown, with 81% of UK venture capital funds based in the capital, leaving towns and cities north of the Midlands with a c£9.7bn early-stage equity shortfall.
However, this funding gap has started to make the investment community take notice of the North, where the competition for deals is lower and the valuations are more competitive when compared to the equivalents in London.
Early adopters have used tax efficient schemes to further bolster their investments into the region. Government-backed initiatives, such as the Venture Capital Trusts (VCT), are increasingly being used in the North to support early-stage businesses in equity deals. These reliefs help mitigate a portion of risk and maximise potential returns for investors who are willing to explore this asset class.
VCTs offers 30% relief on income tax, capital gains free growth and tax free dividends. And despite the government desire to increase tax revenues, the VCT scheme was extended in last Autumn’s mini budget, where the treasury decided to scrap the deadline on the reliefs know as the ‘the sunset clause’. Which has given both investors and entrepreneurs confidence that they can leverage the scheme in the years to come.
The number of businesses using government-backed investment schemes in the North has given rise to regional fund managers who are now attracting more deal flow into venture capital, where previously it may have been lost to private investors. Due to its unique conditions many are seeing the North as its own asset class, as companies here operate in a different way to those in London and overseas.
When 61% of VC funding goes into London businesses and only 7% goes into Northern businesses, diversifying by fund manager as well as geographic location is becoming more popular with financial advisers looking to offer their clients the best outcomes.
For more information on the Praetura Growth VCT please visit www.praeturainvestments.com/vct/
