VTC investment

Are Investments into VCTs Something For Me?



Posted on: 3rd May 2022

It can be a minefield knowing exactly what to invest in the 2020s, especially with so many things presented and uncertainty over how stable markets are in the current economy. Out of the many investment opportunities that arise, VTC investment (Venture Capital Trusts) can be successful, but you would require the knowledge of independent financial advisers Manchester to evaluate all risks involved.

VCTs raise money from investors to invest in young, private companies, giving the investors the ability to claim up to 30% income tax relief on the amount they invest. VCTs offer tax-free capital gains and tax-free dividends in return for the investor’s risk of investing – which has led to a boom in demand due to the tax breaks as well as the opportunity to back exciting new business ventures such as Gousto and Cazoo.

What are VCTs?

VCTs are investment companies listed on the London Stock Exchange that raise money from investors to fuel young, privately-owned companies that are not listed on the stock market – or listed on the junior stock market.

When someone invests in a VCT, they become a shareholder of the trust itself and can get exposure to any investments the VCT makes following the investment as well as the existing portfolio. This was introduced in 1995 as a way to offer generous tax reliefs to investors and has gone on to become a big play for experienced investors.

What do VCTs Invest in?

Generalist VCTs invest in a wide array of smaller, private companies that are not listed and span several industries. Often, VCTs will choose to back proven entrepreneurs or business people they have a proven working relationship with, often targeting specific sectors.

As many early-stage companies have the potential to fail, it is recommended to have a diversified portfolio – especially if they are fresh individuals and businesses to work with no track record.

Aim VCTs invest in new shares issued by AIM-listed companies, targeting tax-free growth as well as income. Whilst these are investments into stock market listed forms, the price on these trusts can be volatile due to them being valued daily instead of periodically like unlisted firms. This does however have more flexibility to enter or exit investments because ordinary shares are easier to be sold on the market.

Some VCTs are more specialist and focus on individual sectors.

Why Should I Invest in VCTs?

As an investor, you can stand to claim up to 30% income tax relief on the amount that you invest into a VCT, providing that you hold that investment for a minimum of 5 years.

Additionally, VCTs offer tax-free capital gains and tax-free dividends (if the VCT pays out dividends), help to diversify your portfolio and provide exposure to early-stage startups. However, you need to be comfortable with any risk, which is why you need specialist independent financial advisers Cheshire to fully ascertain and disclose all stages and avenues when it comes to VCTs.

Contact the team at Haven IFA today for all information on capital gains relief, VTC investment and investment advice Manchester.