What is a VCT?
Venture Capital Trusts (VCTs) are quoted private equity funds whose shares trade on the London stock market. The VCT aims to make money by investing in other companies. These are typically very small companies which are looking for further investment to help develop their business.
VCT typically invests in around 20 such businesses. These are chosen by the VCT manager – an expert in identifying opportunities amongst fledgling companies, and negotiating attractive deals for investors.
It is possible to invest up to £200,000 in VCTs per tax year and to encourage investment the government offers generous tax benefits to investors, including tax relief of up to 30% when investing.
VCTs are sophisticated, long-term investments only suitable for inclusion in significant portfolios. It is difficult to access the capital invested in the short term and they often carry higher risks than many other forms of investments. The value of an investment in a VCT can go down as well as up and investors could lose monies, even after taking into account tax relief. VCTs usually trade at a discount to their net asset value. It may be difficult to exit VCTs as they are often illiquid and they should be considered long-term investments. The past performance is not a guide to its future performance.
Anyone considering an investment should ensure they are comfortable with this, and all other risks which are detailed in the prospectus for each VCT. We assume investors will make their own assessment of their expertise and the suitability of a VCT for their circumstances. Those with any doubts should seek expert advice. VCTs must be held for a minimum of five years in order to retain the tax relief, but a ten-year view is often better as dividends are the primary source of returns as the VCT portfolio matures.
More information about VCTs