Venture Capital Trusts (VCT) are counting down to celebrate their 20th birthday in April.
The tax effective investment vehicles for business angels have sometimes faced a bumpy ride over the past two decades but now sit firmly in the savvy investors toolkit alongside the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).
VCTs are behind some trending businesses in Britain –
- Secret Escapes – a discount web site for upmarket holidays and short breaks
- Zoopla – the online rival to property portal Rightmove
- Graze – the expanding snack box seller
- Brewhouse & Kitchen – a chain of classic pubs
The latest VCT figures from HMRC show that more than £440 million is staked in 97 VCTs in the 2013-2014 tax year.
How VCTs work
On average, a third of investors have put between £5,000 and £10,000 into a business.
Although figures show the level of investment is rising, the number of VCTs shrank from 118 in 2012-13 due to mergers and closures.
In the run up to the end of the financial year, trade body the Association of Investment Companies (AIC) is running a number of events to raise the profile of VCTs against competition from the Seed Enterprise Investment Scheme (SEIS).
One promotion is an online video by the AIC explaining how VCTs work and the benefits for investors.
Fund managers run VCTs. These managers collect cash from investors and then invest in companies that meet VCT criteria.
VCT tax breaks
Tax breaks to investors include:
- 30% income tax relief on investments up to £200,000 a year, providing the shares are held in a VCT for five years
- No income tax on dividends paid by the VCT
- No capital gains tax on VCT share disposals
“Investors tend to put smaller amounts of cash into VCTs than other investments,” said an HMRC spokesman. “This is probably due to the nature of the underlying investments, which can be risky and because of competition from SEIS and EIS.”
The AIC explained that technology and telecoms are the most popular VCT investments, followed by business services, leisure and hospitality.
“Out of interest, the longest serving VCTs are Baronsmead and Northern Venture Trust,” said an AIC spokesman. “£1,000 invested in these schemes at their start would now be worth £3,549 for Baronsmead and £4,031 for Northern Venture Trust.”
