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Venture Capital Trusts
Venture Capital Trusts (‘VCT’s’) were introduced by Gordon Brown some 10 years ago as a vehicle to enable private investors to make available equity capital for small, growing companies. In order to encourage private investors to participate, substantial tax breaks were offered for participants. In simple terms, investors currently subscribing up to £200,000 in new shares in a VCT can set off 30% of their investment against income tax , and any dividends and capital gains which result are free of tax provided that the holding in the VCT is held for at least 5 years. Investors purchasing existing shares in a VCT do not get the 30% income tax shield but do qualify for dividends and capital gains free of tax.
Investment performance matters a great deal more in the long run than the tax breaks, and the investment performance of existing VCTs has been very mixed indeed. Check the record of the manager, check with your investment advisor if appropriate, understand what type of small companies the managers are proposing to back, and remember that for the most part these are high risk and long term investments and not appropriate for the proverbial widow and orphan. But if you get it right they can be very attractive investments offering a high tax free yield and you have the added bonus that you are helping the enterprise economy.
See:-
Official description of tax relief and conditions for approval of VCTs:
www.hmrc.gov.uk/guidance/vct.htm
VCT ratings and guide to VCTs(free) : www.bestinvest.co.uk
VCT ratings : www.chelseafs.co.uk
PLEASE MAKE SUGGESTIONS FOR ADDITIONS TO THIS SECTION, AND RATE THE USEFULNESS OF THE SITES YOU USE - SEE ‘ADD A CONTRIBUTION’ ABOVE
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