The tax advantages of ISAs are not as attractive as those of Venture Capital Trusts (VCTs). However, the group said the move will make VCT investment an ‘easier and more direct process’ for clients. Minimum investment levels are lower and there are no restrictions on taking money in or out of an ISA. Rather than taking money out of an ISA and reinvesting it, they can simply switch.

See YourMoney.com’s VCTs: Tax efficient ways to invest in start-ups for more information.

All income paid out from an ISA is tax-free, and there is no capital gains tax on any growth. VCTs also have no tax on income or gains, but also come with 30% upfront income tax relief, providing that shares in the VCT are held for at least five years.

The ISA announcement coincides with the launch of the latest round of fund raising for the group’s Titan Venture Capital Trust, the largest VCT in the UK. The group is trying to raise £120m with the potential for a further £80m, subject to demand.

The trust invests in around 50 early stage, higher risk smaller companies. These range from very young early stage businesses, such as the retail property marketplace company Appear Here, to well-known household names including Secret Escapes, the members-only holiday company.

Paul Latham, managing director at Octopus Investments, said: “It’s a truly exciting time for VCTs. Figures have shown that during the last tax year, VCT demand was the strongest in a decade, an increase that has been fueled by changes to pensions legislation and the buy-to-let market in recent years. VCTs are now seen by many to be a powerful planning tool, and have proved popular with those looking for a tax-efficient way to complement and diversify their portfolio.”

“By enabling people to invest in a VCT through their ISA, we are opening up the VCT market to more investors. We want to give people the opportunity to access the planning benefits of a VCT and the growth potential of some of the UK’s most exciting growth companies.”

VCTs play a role in helping to develop the next generation of UK business. A recent review of VCT investment from the Association of Investment Companies (AIC), ‘Transforming small business’, found that VCTs are important providers of scale-up funding and play a vital role in helping smaller UK businesses. Its research showed that 57% of smaller companies supported by VCTs received total investment of between £2m and £10m. The average level of investment received by small businesses was £3.2m.

Jo Oliver, fund manager of the Octopus Titan VCT, commented: “Since we launched Titan ten years ago, we have seen the UK entrepreneurial scene thrive and flourish. Europe has become a hub for building world-class technology companies. In 2010 there were only two European tech businesses valued over $1bn and yet there are now nearly fifty, only seven years later. Eighteen of these are headquartered in the UK.”