Venture Capital Trust VCT

VCTs are investment companies listed on the London Stock Exchange and were introduced to encourage individuals to invest in smaller UK companies not listed on the main stock exchange.
VCTs invest in a portfolio of unlisted or AIM companies (or both) in order to aid their development into a successful business and realise gains for investors.
They are designed to give private investors an opportunity to back young growth companies while offering generous tax incentives 

Venture capital trusts VCTs aim to make money by investing in new share issues. The underlying companies tend to consist of unquoted companies those traded on the Alternative Investment Market AIM – the stock market for small and young companies – and those traded on PLUS Markets formerly Ofex the off-exchange trading facility for even smaller companies.

There are strict limits on the size of companies in which VCTs may invest. the gross assets test is set at £7 million immediately before investment and £8 million afterwards to focus on the companies most in need of improved access to finance.

Within three years of a VCTs launch its manager must invest at least 70% of its assets in qualifying companies meeting the criteria outlined above. No single holding is allowed to represent more than 15% of the VCTs assets. Typically a VCT will hold shares in 25-35 companies when fully invested. Some may hold more but it is rare to find a VCT with a variety of holdings not in double figures – the idea is to diminish risk by diversification.

In order to benefit from the generous tax breaks on offer with VCTs you are required by the taxman to hold your VCT investment for at least five years (or death if sooner).

Most VCTs fall into three main categories
- AIM VCTs investing in companies that are quoted on the Alternative Investment Market. VCTs can only invest in AIM companies that are raising new finance for example companies that are seeking their first listing. VCTs investing in AIM shares are likely to be fully invested sooner than other VCTs.
- Specialist VCTs investing mainly in unquoted technology companies. A portion of the money raised may also be invested in some AIM-quoted technology companies to reduce risk.
- General VCTs spreading investments between unquoted and AIM-listed companies. Many have a policy of investing in companies that are already or very nearly profitable in an attempt to reduce risks.

There are three types of VCT launch.
- A new launch is when a brand new VCT is launched.
- A new share class launch is when an existing VCT raises additional funds for a new portfolio.
- A top-up offer is an additional issue of shares by a VCT which may involve buying into an existing portfolio.

The key tax provisions are
- 30% upfront income tax relief (limited to the amount of income tax payable for the year or £60,000)
- tax-free dividends
- tax-free capital gains (when you sell your shares)

For suitable investors these tax incentives may encourage investment in VCTs but the tax incentives do not make investing in VCTs any more suitable to people who would not normally invest in them due to the high risks of the underlying investments.

Veracity financial planning is not responsible for, nor does the Financial Services Authority regulate advice given with regard to taxation matters regard to trusts; some aspects of tax advice; commercial mortgages or second charge secured lending.
“The value of your investment can fall as well as rise and you may get back less than you pay in.”