VCTs
Introduction
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What is a VCT?
Venture Capital Trusts (VCTs) are an extremely tax-efficient way of investing in exciting and dynamic British businesses. Your money will be invested in a fund that is broadly similar to an investment trust, except that VCT investors have the added benefit of the UK’s most generous income tax relief.
For a more detailed explanation please download our VCTs Made Simple Guide.
Money back from the Tax Man!
For every £10,000 you invest in a VCT, you can reclaim £3,000 from any income tax you have paid or are due to pay in the same tax year. That’s 30% money back, while your full investment is put to work to generate returns for you.
Furthermore, all dividends and capital gains received from a VCT are tax free. To find out more see the Tax Reliefs Page or download our VCTs Made Simple Guide.
Note: You can only reclaim up to the amount you are due to pay in income tax in the year you subscribe and, although you can reclaim your lump sum, you must hold your VCT shares for 5 years otherwise the Inland Revenue can claim it back from you. VCT Tax rules may change. If a VCT loses its VCT status investors may have to payback their income tax relief.
What is Venture Capital?
Venture capital is a way of financing the growth of unquoted companies, including companies listed on the AiM and PLUS (formerly OFEX) markets. The aim of venture capital is to enable today's "growth" companies to develop into tomorrow's major businesses - thereby providing investors with significant returns on their investment. The venture capital industry in the UK has an excellent record of generating good returns for investors. 2006 results show that UK private equity has continued to outperform the FTSE All-Share index over the medium to long term*.
UK Private Equity vs FTSE All-Share Index and Total Pension Fund Assets over 3, 5 and 10 years to 31 December 2006
Source: latest BVCA Performance Measurement Survey, returns to 31 December 2006
Who manages the fund?
VCTs are managed by specialist, hands-on managers who help the companies in which they invest to grow and develop. When they succeed, so do you.
Choosing a VCT with a manager who really knows their area of expertise is vital. They should have a demonstrable record of producing returns for investors, specifically in the type of investments that the VCT will be making. Although, a fund manager's past performance is not a guide to its future performance.
Risk involved with VCT investment
Many of the risks associated with VCTs are the same as those of private equity. A portfolio of investments in unquoted companies can offer attractive investment returns but by its nature involves a higher degree of risk than a quoted portfolio. The companies will generally be at an earlier stage than more developed quoted companies and therefore have a higher risk of failing. There is also no capital guarantee and since the value of shares in VCTs can fluctuate you may not get back the amount you originally invested.
VCT shares are listed on the London Stock Exchange. However, the secondary market for VCT shares is extremely illiquid and as such you may find it difficult to realise your investment. Furthermore, because of the illiquid market it is very unlikely that the price you will receive for you VCT shares will reflect the net asset value of the portfolio.
The past performance of the funds is not a guide to their future performance. Tax reliefs available depend on an individual’s circumstances and are subject to change.
