By HUGH ROGERS 24/02/2006
This week saw venture capital trust (VCT) sales surge comfortably past £260m, three weeks earlier than the last tax year. At this rate the VCT market is well on course to break last year’s record £507m.
| "The VCT market is well on course to break last year’s record £507m." |
If, as is widely expected, the Chancellor dampens or removes the 40% income tax rebate (currently given on investments in new VCTs) in his 22 March Budget then sales will undoubtedly hit an all-time high. Current VCT supply is £781m, meaning 2005/06 sales could theoretically top £1 billion. In practice this is unlikely, meaning some of the lower quality and more esoteric VCT launches might struggle to reach viable funding. This is important to bear in mind when selecting a VCT; a trust which aborts launch at the last minute (there were 6 in 2004/05) is not just an inconvenience, it could mean you missing out on using your allowance if there’s insufficient time to invest elsewhere.
The more popular trusts are having no problems in this respect, as evidenced by Baronsmead VCT 4 C just having raised its £20m target in a single week. While there is still ample supply in general it would be sensible to review availability of the VCTs in which you might invest, so as to avoid disappointment.
When reviewing VCT launches you may well be bewildered by the wide choice available. There are currently 38 launches, covering a wide range of investment types and styles. Aside from plenty of choice in the more traditional AiM, private equity and generalist categories, a number of interesting specialist VCTs are available. These include funds investing in wind power, emerging music artists, television programme production, live music events and public sector outsourcing contracts. There are also launches where managers intend to return some, or all, of the capital at a future date (note: there are no guarantees, you should ascertain the likelihood the manager will be able to do so before investing).
| "It is vital to understand the risks involved and the specifics of individual trusts..." |
As with any investment, it is vital to understand the risks involved and the specifics of individual trusts before buying a VCT. It also makes sense to spread your VCT investment across a range of trusts, as diversification can help reduce risk.
You can view a full list of current VCT launches, including Bestinvest’s initial charge discounts, on our website.