Venture Capital Trusts (VCTs)
VCTs originated in the 1995/96 tax year. The VCT itself is a fully-quoted public limited company, but it invests in small, unquoted companies, with the aim of generating a profit when those companies are eventually realised by flotation or sale.
The companies in which a VCT invests are generally regarded as higher risk, but that risk is mitigated somewhat by investing in a spread of companies. In addition to this, there are three types of VCT: generalist, AIM and specialist. The risk tends to increase from the former to the latter.
Under current legislation, VCTs benefit from income tax relief, tax-free capital gains and tax-free dividends; however, you must remain invested for a full five years to qualify for these reliefs and even at this time, you will not necessarily be able to sell your holding and realise your gains. Some VCT managers promise (although they do not guarantee) to buy back the shares at the end of a specified period, but this is usually at a discount. Still other managers set an objective to wind up after a set period, which may not suit your circumstances.
As you can see, VCTs are clearly not suitable for all investors and they are often regarded as high risk investments; however, they can form an important and potentially rewarding part of a portfolio for the right individual. Correct advice is the key to this complex area of financial planning.
If you are interested in VCTs, you may also want to familiarise yourself with Enterprise Investment Schemes (EISs).
VCTs are generally more complex and higher risk than other products and are therefore more suited to experienced investors, higher net worth individuals and those who simply have a greater appetite for risk. However, they can form an important and potentially rewarding part of a portfolio for the right individual. Correct and experienced advice is the key to this complex area of financial planning.
These products are not regulated by the Financial Services Authority or covered by the Financial Services Compensation Scheme.
In the event of a complaint, you will not have access to the Financial Ombudsman Service.
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