Venture Capital Trusts are collective investments which were created by the Government to encourage individuals to invest indirectly in smaller companies.

VCTs themselves are companies listed on the London Stock Exchange which invest solely into companies that are not listed on any recognised stock exchange.

Although non-listed investments and smaller companies are both perceived as higher risk investments, a VCT will invest in a range of smaller companies, thus spreading the investment risk, which can considerably lower the portfolios total risk, as well as giving the investor the advantages of their investments being expertly monitored and managed by experienced and qualified investment professionals.

The most attractive benefit of VCTs to the average investor is their tax treatment. VCTs qualify for 3 advantageous tax benefits:

• Income Tax Relief
• Tax Free Dividends
• Capital Gains Tax Relief

The income tax relief at 30% is available to be set against any income tax liability that is due, whether at the lower, basic or higher rate.

Dividends paid from the investments in the VCT are paid completely free of tax, unlike most investments where dividends are taxed at source.

Any capital gains made can be deferred via investment into VCTs. The investment into VCTs must be from the year before or up to 3 years after the gain is made.

It is possible to completely avoid capital gains upon disposal of the VCT. Both the gains made in the VCT and any deferred capital gains can be completely erased provided the monies have been held in qualifying stocks for 5 years or more.

Should the investor die within the 5 year period, HMRC will not withdraw the tax relief, or revive the deferred gain, on account of any event occurring at or after the time of death. However, depending on the deceased’s estate, Inheritance Tax may become a consideration.

Venture Capital Trusts are not regulated by the Financial Services Authority (FSA) and therefore, the usual regulatory protections will not apply, i.e. the Financial Services Compensation Scheme.