Trusts Hope Investors Are Ready to Be Thrilled ; Simon Hildrey Reports on the Revival of Venture Capital Funds

By Hildrey, Simon | The Independent on Sunday (London, England), August 29, 2004 | Go to article overview
Save to active project

Trusts Hope Investors Are Ready to Be Thrilled ; Simon Hildrey Reports on the Revival of Venture Capital Funds


Hildrey, Simon, The Independent on Sunday (London, England)


Although many people will view Chancellor Gordon Brown as an unlikely saviour for investors, he might just have rescued venture capital trusts (VCTs) from terminal decline.

Because, on 5 April this year, just as VCTs had become the forgotten asset class of investments, the Government changed the tax benefits.

Under the new rules, if you invest in a VCT before 5 April 2006, you will receive a rebate of up to 40 per cent. For example, put in pounds 10,000 and you get pounds 4,000 back from the taxman. You don't have to be a higher- rate taxpayer to reclaim this 40 per cent.

However, the sum is restricted to the amount of income tax you pay: if you invest pounds 200,000 each tax year but have paid only pounds 5,000 to the Inland Revenue, you will receive only a pounds 5,000 rebate.

All gains and dividends in the trusts are tax-free but you must hold your investment for at least three years to enjoy these benefits.

VCT managers hope the tax changes will herald a return of the good old days and encourage a significant increase in investment. More than 15 launches of new VCTs have already been announced on the back of this expectation. The managers are hoping that at least pounds 250m will be raised, and possibly as much as pounds 500m.

The peak demand for VCTs came in the 2000-01 tax year, when pounds 440m was invested in them. In 2001-02 this fell sharply to pounds 140m, following the decline in the stock market, and then there was a still steeper drop to pounds 50m in 2002-03. There was a slight recovery to pounds 59m in 2003-04 but that is still just 13 per cent of the amount attracted three years ago.

VCTs are marketed for their tax benefits but shouldn't be chosen solely for this reason. They are closed-ended vehicles listed on the London Stock Exchange and invest in start-up ventures, unquoted companies and shares listed on the Alternative Investment Market (AIM), with capitalisations of less than pounds 15m. This makes them higher-risk investments than blue-chip FTSE 100 stocks, and there is less liquidity.

When investing in a VCT, you need to select from one of three categories: generalist, AIM or specialist. All can offer attractive long-term returns, but performance varies widely. For example, the online publication Tax Efficient Review says that of the generalist and specialist VCTs launched during 1997-98 and 1998-99, Foresight Technology has delivered a return of 18.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Trusts Hope Investors Are Ready to Be Thrilled ; Simon Hildrey Reports on the Revival of Venture Capital Funds
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?