Venture Capital Trusts
If you are willing to be more adventurous with your money, Venture Capital Trusts (VCTs) offer the potential for very good returns coupled with generous tax advantages. VCTs invest in some of the most dynamic, entrepreneurial, high growth companies therefore they are high risk.
By investing in a VCT through TQ Invest, you will be able to take advantage of our market leading discounts of over 4%.
VCTs invest in relatively young businesses, giving you the chance to have a financial interest in flourishing investment opportunities.
With a VCT you are also getting one of the most tax efficient investments currently available in the UK. Investments made into a VCT attract income tax relief of 30% (up to a £200,000 investment limit). As a result, an investment of £10,000 into a VCT could get you a cheque for £3,000 from the taxman.
If you would like to know more about VCTs and our current offers, please call our team on 0800 294 7221.
More on VCTs
The underlying companies VCTs invest in consist of unquoted companies traded on the Alternative Investment Market AIM. This is a stock market for small and young companies and those traded on PLUS Markets for even smaller companies.
There are limits on the size of company that a VCT may invest in. These limits exist in order to focus on the companies most in need of improved access to finance. Typically a VCT will hold shares in 25-35 companies when fully invested. This is the main reason why VCTs are considered high risk, but also why the tax incentives are so high. New and small companies carry a higher risk of going out of business than larger established ones.
If the VCT's manager fails to keep to investment rules, such as investing 70% of the funds capital within three years, then that VCT will not retain the tax break and you may have to pay it back.
To benefit from the generous tax breaks on offer with VCTs you must be invested in your VCT for at least five years. If you sell your VCT within five years, you will have to repay the tax relief you received when you first invested.
Tax breaks only exist on new VCT investments, which is the reason why there is a limited second hand market. This can be problematic if you need to sell your VCT shares before the end of the fund's term. Even if you can find a buyer, you may have to sell them at a significantly reduced price
VCTs are not as diversified as some other investment types and concentrate on a limited number of sectors and business types. This provides a great opportunity if these sectors are booming, but any setback is more likely to have a very damaging effect on your investment. VCTs also carry higher ongoing mangement charges than most other investments.
VCTs fall into three main categories
- AIM VCTs investing in companies that are quoted on the Alternative Investment Market. VCTs can only invest in AIM companies that are raising new finance, for example companies that are seeking their first listing.
- Specialist VCTs investing mainly in unquoted technology companies.
- General VCTs spreading investments between unquoted and AIM-listed companies..
The key tax provisions for 2011/2012 are
- No liability to higher rate tax on dividends.
- No tax on realised gains or capital gains tax on disposal.
- Income tax rebate of 30% on investments of up to £200,000 in any tax year for investing in new VCT shares held for at least five years (three years for shares purchased before 6 April 2006) provided that the investor has paid this amount of tax.
- Capital gains tax deferred relief is available up to the annual investment limit on VCT shares purchased before 6 April 2004.
The generous tax position of VCTs makes them a compelling opportunity for investors. However, you must ensure that you are comfortable with their high risk nature and be willing to invest for the long-term. You must also be sure you would be able to cope financially if you did not get back some, if not all of the money you put into a VCT. Because of this, they are not suitable for everyone. You should carefully read the VCT's prospectus before investing.