What are the risks?

VCTs are aimed at sophisticated wealthier investors who can afford to take a long-term view and can accept falls in value. There are significant risks associated with investing in venture capital backed companies. They will generally be at an earlier stage than more developed quoted companies and will often carry a higher risk of failing. VCTs are long-term investments and you have to hold your investment for at least five years to take advantage of the 30% income tax rebate. Most VCT managers would suggest you have an outlook of at least 5 to 10 years regardless of this.

You can sell VCT shares if you needed money quickly. However, there would be the significant possibility of a capital loss, especially in the early years. In addition, if you sell within five years, you will have to repay the reclaimed tax.

A further issue arises from smaller VCT funds who fail to raise sufficient money at launch. The resulting portfolio of investments may be more concentrated and this will increase the risks. Although some VCTs may be viewed as less speculative than others, investors should remember that VCTs as a whole are higher risk investments. As well as investment risks, it is possible that HMRC could withdraw the tax status of the VCT if it fails to meet the requirements; if this happens any tax rebate may have to be repaid.

Each VCT will issue a prospectus at launch which gives details of specific risks, you should read this thoroughly before making any investment.