27th March 2013
Venture capital trusts are a highly tax efficient means of investing especially for the better investors who are prepared to take a significant amount of risk. They have been set up by the Government as a means of attracting investment into the UK’s smaller and medium sized companies.
However as with all other types of tax efficient investments such as pensions and Isas, you can lose this year’s opportunity if you don’t invest by the end of the tax year. To that end Hargreaves Lansdown has suggested four interesting investments below.
We include HL’s little explanation and risk warnings first.
“VCTs are a tax efficient way for investors to support and benefit from growth in some of the UKs most dynamic, entrepreneurial and high growth companies. Many VCT are run by experienced management teams and offer new investors access to established investment portfolios which already pay out a tax free dividend.”
“However VCTs should be regarded as higher risk investments and are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years. Investors should look to get most of their return in the form of dividends from when the managers make a disposal. Selling the shares can be difficult to get full value.”
Mobeus VCT Linked Offer
Mobeus is a generalist VCT and favours management buyouts. Mobeus VCTs are managed by a strong, experienced team with mature dividend-paying portfolios. The aim of each VCT is to provide regular and growing dividends through a combination of income and capital growth. The annual tax free dividend target is 4p per share for each fund.
British Smaller Companies VCT & VCT 2
Investors can access an existing diverse portfolio of growth orientated companies, some of which may be quite small compared to those invested in by other VCTs. The primary focus is on Management Buy-outs (MBOs) and investment in unquoted businesses. They avoid companies with high levels of debt. The aim of these funds is to provide attractive total returns and consistent tax free dividends of 5p for British Smaller Companies VCT and 4p for British Smaller Companies VCT2.
Hargreave Hale AIM VCT 1 & 2
Manager Giles Hargreaves is considered to be one of the best small and micro-cap fund managers around. This VCT allows investors to access his expertise inside a tax efficient VCT wrapper. The VCTs provide capital to smaller companies listed on AIM so they can expand their businesses. The VCTs target a tax free dividend of 5% of the Net Asset Value of the funds, though the natural yield of the portfolio is around 2% so much of this will come from capital.
Puma VCT 9
Limited Life VCTs, such as Puma VCT 9, often invest in one sector and are normally designed to be lower risk and lower return than other VCTs. The VCT managers invest in businesses which are asset backed and have a good quality management team. Puma VCT 9 aims to protect capital and pay tax free dividends of up to 6p per annum from the second year before looking to wind up and distribute the remaining assets in the sixth year. Shore Capital, managers of the Puma 9, are experienced in this style of investment.
Note HL says the deadline for applications is next Wednesday.