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    Venture capital trusts

    Venture capital trusts
    Venture capital trusts (VCTs) are collective investments similar to investment trusts that offer one of the best tax breaks available – if you can stand the risks involved. They are stock exchange-quoted-companies which invest mainly in unquoted companies. The idea is that the trusts provide a way for private investors to back the success stories of the future while channelling capital to companies in need of financial backing. Over 30 VCTs have been launched since 1995, and over £700m has been invested in them.

    Venture capital is a risky business because, although a handful of companies may turn out to be the stars of the future, many companies never make it. That’s why you get 20% tax relief on the investment you make as long as you keep the cash in place for five years – though you can sell at any time. Investing in a venture capital trust launch means you can defer any Capital Gains Tax you owe if the gains were made 12 months before or after the shares are issued in a VCT. There is no income tax to pay on any dividends, nor Capital Gains Tax to pay on the trust. You claim the up front tax relief by sending off a certificate to your tax office.

    There is no limit to how much you can invest, but you can only claim tax relief on the first £100,000. The minimum investment in most trusts is around the £5,000 mark. Because of the risks involved you should not invest unless you have used up your Isa allowance and have a diversified portfolio of blue chip shares in one shape or another.

    VCT’s are most suited to people with capital gains on shares which they can defer indefinitely through investing in such a scheme. Doing this amounts to getting an interest-free loan from the taxman and putting the money to work for you within the trust. It also allows you some tax planning opportunities, such as crystallising your gain over a number of years to use your annual Capital Gains Tax allowance. Remember that charges are likely to be on the high side.

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