man asking for help with Venter Capital Trust By Rachel Efetha, Chartered Financial Planner with Anstee & Co.

With more of our clients finding that their capacity to invest in Pensions is limited either by the Tapered Annual Allowance or because they are nearing the Lifetime Allowance, they are coming to us for advice on the alternatives to pensions.

A viable alternative is a Venture Capital Trust (VCT). These were introduced in 1995 and had attractive tax treatment as a way of driving investment into smaller UK companies. There is 30% Income Tax relief on investments into VCTs if the investments are held for five years, and any dividends are paid tax-free, as well as profits being free of Capital Gains Tax. So that is three Pro’s to start with!

Now for the Cons

PFS logoThere are restrictions on the size and type of companies that the VCT manager can invest in, and as these are smaller, privately-owned companies, the risks of them failing are much greater than larger, well-established companies. Therefore, they are higher risk and should not be considered by those who do not have the appetite for considerable risk, or the financial resilience to withstand a loss.

There is no secondary market for VCTs as there is no tax relief for someone who buys your VCT shares from you. For this reason, they should be seen as a longer-term hold, until the VCT manager itself buys the shares back from you. This will certainly be at a discount to their true value, and you should look at the buyback terms and conditions before investing.

Summary

Whilst I have said that VCTs can only invest in smaller companies, the limits are gross assets of £15M or less and 250 employees or less, so we are not always talking about Joe Bloggs setting up in his backroom. Some household names like Zoopla, Gousto, Virgin Wines, Everyman Cinemas, Graze and Cazoo have been backed by VCT investment.

VCTs have great tax advantages but beware of the adage ‘don’t let the tax tail wag the investment dog.’ As part of an overall portfolio of pensions, ISAs, emergency funds, a VCT could be a good addition, but it is certainly not for a first-time investor who has not maxed out the other lower-risk opportunities.

How Anstee & Co can help you with a Venture Capital Trust.

We are Independent Financial Advisers (IFA’s). This means that we offer unbiased financial advice. We look at all the financial planning options available to you from the “whole of market”. Our team will be able to help you draw up a financial plan that is right for you.

call back logo for help speaking with Christine MansfieldWe have offices located in-

  • Kettering, Northamptonshire
  • Stamford, Lincolnshire
  • Towcester, Northamptonshire
  • London, Central London

Additionally, our financial planners live and make use of meeting rooms in-

  • Bedford, Bedfordshire
  • Market Harborough, Leicestershire
  • Northampton and Wellingborough in Northamptonshire.

We would welcome the opportunity to have a coffee with you and discuss how we can provide the advice and help you require. The initial “getting to know you” meeting is at our expense and is without obligation. Why not contact us today.

If you would prefer, meetings can also be arranged, making use of video conferencing facilities such as-

  • Zoom
  • Microsoft Teams
  • Skype
  • Facetime

There is no need to visit an office as all work can be handled remotely. Also, all meetings can be arranged at a time and in a way that is convenient for you.

If you have any thoughts or comments on this article, “Venture Capital Trusts: The Pros and Cons of VCT’s.”, then we would love to hear from you.

Financial Conduct AuthorityFinally, the information contained in this article is for information purposes only and does not constitute financial advice. No action should be taken based on this information alone. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).