When is Venture Capital not Venture Capital?

Tracey Foster article about Venture Capital Trusts VCT'sBy Tracey Foster, Financial Planner.

Although we know every year the end of the tax year will fall on 5 April – there are some of us who will always leave potential ISA (Individual Savings Accounts) and Pension contributions to the last minute!

In my last article, I talked about the Tapered Annual Allowance and how this can hinder pension savings for individuals earning more than £150k per annum. In these situations, we look for alternative options and one of these options may be to consider a VCT (Venture Capital Trust).

This avenue will not be for everyone but it is worth dispelling some myths around this type of investment.

Dispelling the myths around Venture Capital Trusts (VCT’s).

The term Venture Capital Trust suggests investment into start-up ventures or young companies in the early stages of growth, pre-revenue or pre-profit. This can set alarm bells ringing for investors looking to place their hard-earned cash into such a vehicle, as this would be considered (quite rightly) high risk.

However, the reality is, the VCT is designed to provide private equity capital for small expanding companies, established SMEs with a proven track record of revenue and profit. To qualify companies must have-

  • Gross assets of no more than £15m,
  • Fewer than 250 employees (499 for knowledge-intensive companies)
  • Have been in business no longer than 7 years.

These companies may need assistance to move their business to the next level.

A couple of real-life examples.

A couple of examples of such companies is Mowgli Restaurant and 200 Degrees Coffee Shop. Both recently attracted VCT investment from local private equity house Foresight Group. Mowgli was established in 2014 in Liverpool and Manchester. Those of you who are keen on Indian Street Food will know that they came to Birmingham Grand Central in 2017 and further openings are planned for 2018 in Leeds and Oxford.  200 Degrees was established in 2012, an independent coffee shop and wholesaler. Those of you who work in and around Colmore Row will be familiar with this venue, offering excellent coffee and a popular meeting place for businesses. Whenever I have visited or walked past these Birmingham spots –  there is always a thriving buzz!

What is the risk of investing in VCT’s?

Of course, we are not saying that investing in established SMEs does not carry any risks, all investments carry some form of risk. What we are saying is that the risk may not be as great as if investing in a start-up company, as the term Venture Capital would suggest.

The VCT was introduced by the Government in 1995 to stimulate investment into smaller UK companies. Individuals invest by holding shares in a VCT. The VCT invests in a spread of small unquoted companies. This enables investors to spread their risk, just as they do by holding shares in an ordinary investment trust company.

There is a range of tax efficiencies for individual investors such as-

  • 30% income tax relief on investments of up to £200,000 per year providing the investment is held for 5 years.
  • Capital Gains tax does not apply to any capital growth in the value of VCT investment.
  • Dividends paid by the VCT are also tax-free.

Some VCT providers offer a minimum starting investment as low as £3,000.

How we can help you with Venture Capital Trusts.

Working with the right independent financial adviser (IFA) can help you find the right VCT to meet your needs. Anstee & Co provide advice in all areas of investment and financial planning. If you would like to find out if they are right for you why not arrange a meeting. We have offices in-

  • Birmingham
  • Kettering
  • London
  • Stamford

Our financial planners also make use of meeting rooms in Northampton, Wellingborough, Towcester and Warwick.

2018-04-03T12:19:47+01:00 March 28th, 2018|News|