Venture Capital Trusts (VCTs) are tax efficient companies listed on the London Stock Exchange. They were first launched in 1995 as a collaboration venture between HM Government and the trade association of the UK private equity industry, the British Venture Capital Association (BVCA).
VCTs are designed to attract UK private investors to invest in a diversified portfolio of unquoted and AiM-traded growth companies whose trading activities are predominately based in the UK. VCTs are normally managed by specialist investment managers under the governance of an independent Board of Directors. Both the Manager and the Board are required to have satisfactory and relevant experience as judged by the UK Listing Authority when raising new capital under the prospectus directive that was introduced on 1 July 2005.
Consider tax benefits vs investment risk
Several tax incentives are available to UK income tax payers who invest in VCTs.
Investors must weigh these tax benefits against the risks inherent to investing in smaller companies. VCT investment is only suitable for investors who can evaluate the risks and merits of such investment, and who have sufficient resources to bear any loss that might occur. Most investors invest in VCTs on the advice of professional advisers who are more aware of the risks and returns possible from VCTs.
Be aware of policy changes
The VCT tax reliefs can vary depending on HM Government policy. Shareholders need to be aware of any changes in the VCT legislation regarding not only tax, but also the restrictions on how the capital raised can be invested in a smaller population of companies than for funds without the taxation benefits. For example, after 6 April 2006, the HM Government made the policy decision to focus investment into companies with less than £7m gross assets and £8m after investment. However, capital raised prior to this date can still be invested in companies with less than £15m gross assets (£16m after investment).