Should you be considering putting your money into Venture Capital Trusts (VCTs)? Yes if you can afford to take a long-term view and are comfortable with the risks of investing in entrepreneurial smaller companies.
They are among the most tax efficient investments available but are most suited to investors with significant investment portfolios who are happy with the significant level of risk involved. We feel that at most they should account for five to ten percent of your equity portfolio but, obviously if you can both afford to and are prepared to take more risk, this percentage can be increased.
VCTs are designed to pay out any profits only when the companies in which they invest are sold - so you must take a long-term view of perhaps five to ten years.
A £10,000 investment could cost as little as £7,000 (due to income tax relief) with the prospect of tax free dividends and tax free growth, although you should never invest just for the tax benefits. It could offer you an opportunity to get in on the ground floor with some of the most UK 's most dynamic, entrepreneurial, high growth companies.
No capital gains taxWhen eventually you sell a VCT investment any gain will be completely exempt from capital gains tax. By buying shares in an existing VCT which is quoted on the stock market you do become eligible for the capital gains tax exemptions and you do benefit from tax free dividends as they are paid out. However the 30% tax relief against income tax is available only if you buy shares in a VCT on launch.
In short if you buy a VCT at launch you receive:
- A 30% tax rebate, subject to your total income tax bill
- Tax free distributions and dividends
- No capital gains tax on any capital profit on sale
As tempting as the tax breaks are, it is very important that you make sure a VCT is appropriate for your circumstances. We are Britain 's biggest VCT broker and therefore able to research the market thoroughly and provide detailed information to help you decide. It also means we are able to offer market leading discounts - savings of up to 5.5% against initial charges. Indeed we have helped our VCT clients to save more than £5 million during the past three tax years.
We often suggest having a portfolio of VCTs, obviously this can be built over time. If you are unsure where to start we have produced two guides; the first giving more factual information about VCTs and the second offering our comments on this year's VCT offers.
More details are available on our website at www.H-L.co.uk/vcts . Alternatively email us or call our helpdesk on 0117 900 9000 (Mon - Fri, 8:30am - 6pm ).
If you want to get the tax benefits this year remember to invest by 5 th April. As well as research our website has links to download each prospectus which includes application forms.
