Venture Capital Trusts (VCTs), provide investors with the opportunity to invest in small unquoted or AIM-listed UK companies. As smaller companies are seen as the backbone of the UK economy, the Government provides generous tax breaks for VCT investors to help incentivise them for the inherently high level of risk involved when investing in small, illiquid companies.
The key tax advantages are a 30% Income Tax credit on investments into new share issues from VCTs, providing the investor has incurred an equivalent Income Tax liability during the tax year the Income Tax credit is being claimed and that the investor also holds the VCT shares for at least five years after being allotted the shares. Once invested, VCT dividends and gains are tax free.
In our view, VCTs should only be considered as a small part of an overall investment portfolio by experienced investors who are higher rate taxpayers and can take a long-term view. For more information on VCT rules, download our free guide.
Last date for VCT investment this tax year is 2 April
With just days left until the end of the 2014/15 tax year, time is running out to invest in VCTs if you intend to use the 30% Income Tax credit available on subscriptions to new VCT share issues against this year’s tax liability. This year, because of the timing of the Easter Bank Holiday, the final date for receipt of VCT applications at our offices is therefore the morning of Thursday 2 April.
VCT offers each have limited capacity and are filling up quickly, so those intending to invest should not delay and check whether there is remaining capacity in a particular VCT before posting an application form by calling us on 020 7189 9999. Before investing in a VCT you should read the relevant prospectus (which contains the application forms) and also read the Important Information at the bottom of this article.
Four VCT ideas for the end of the 2014/15 tax year
At the time of writing, some 16 VCT offers remain open but a number are close to reaching their targets. Four which we believe merit consideration for last minute investment are:
Puma 11 ★★★★★
This is a limited life VCT which will seek to wind-up after the minimum five year period required to invest in a VCT and retain the 30% Income Tax relief available. It will focus on asset-backed investments and, although there are no guarantees, will have a strong emphasis on capital preservation rather than seek to take more risk to maximise returns.
Albion VCT ★★★
This offer provides access to six VCTs, each of which has differences and therefore our overall rating reflects this. However, within the offer it is possible to select an individual VCT, the Albion Venture Capital Trust, which invests solely in asset-backed investments such as pubs and healthcare companies where it can seek a first charge on a property investment. Unlike Puma 11 it is not a limited life VCT.
Downing ONE VCT ★★★★
This is a highly diversified Generalist VCT and in our view a great ‘all-rounder’. Approximately 60% of the portfolio is invested in unquoted companies, typically with some form of asset-backing, and 40% in high growth companies listed on AIM.
Unicorn AIM VCT ★★★★★
Unicorn AIM is our highest rated VCT focused on investing in companies listed on AIM, the exchange for small, high growth companies. The VCT has a greater emphasis on capital growth than income generation.
For our reviews, prospectuses and application forms for each these and other VCT offers click here to visit the VCT page on our website