Venture Capital Trusts

By LBV

11 Jan 2012

The chancellor’s decision to remove the £1 million limit on investing into a single company in 12 months has the power to remove significant hurdles for the industry. The rule had created significant administrative burdens for VCTs, preventing individual trusts from providing all of the funds a small company might require, even where the amount is well within the overall limits set by the scheme. Under the current rule this means that a company seeking £5 million of investment has to reach agreements with five VCTs rather than one.

This attempt at reducing red tape should significantly enhance the capacity of the VCT sector to support entrepreneurial businesses. Any growth would then in turn offer greater choice and diversification for retail investors

Venture Capital Trusts enable investors to invest indirectly in a range of small, higher-risk trading companies whose shares and securities are not listed on a mainstream stock exchange.

The Government offers investors a range of upfront and long-term tax benefits when investing in VCTs (new shares):
• upfront income tax relief of 30%, on up to £200,000 invested per tax year, but the shares have to be retained for five years
• tax-free dividends
• tax-free capital gains, when you sell your shares

Hargreave Hale manages two VCTs, both of which invest in the Alternative Investment Market (AIM) market, an exchange on which smaller companies’ shares are traded. The Hargreave Hale AIM VCT 1 and the Hargreave Hale AIM VCT 2 are both managed by the highly acclaimed Giles Hargreave and his investment management team.

Investors should be aware that capital is at risk when investing in a Venture Capital Trust. Venture Capital Trusts invest in smaller companies and these generally carry higher risks for several reasons including liquidity issues, smaller management, shorter trading histories, and smaller financial resources available. Shares in smaller companies are also more sensitive to price movements. Due to the greater risks involved in smaller company investments, investors have the potential to receive greater rewards.

Tax benefits depend on individual circumstances and may be subject to future tax rule changes. They also depend on the companies which the VCT invests in maintaining their qualifiying status.

Dudley Warnes
Hargreave Hale Ltd

 

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