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VCTs

Venture Capital Trusts - Chelsea provide first class research and discounts on any VCT available.
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Insight Diversified Target Return Fund (29/10/08)
On page 34 of Viewpoint 22 we profiled the Insight Diversified Target Return fund. It has today been announced that the managers of this fund have resigned. We have since moved this fund to a hold rating whilst we assess the new manager....

Venture Capital Trusts

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Previous Budget Changes

In March 2007, some changes were announced affecting current and future VCTs. For existing funds, the changes were broadly positive, allowing managers more flexibility in realising gains from investments and making changes within the portfolios without breaching the rules. For funds raised subsequent to 6th April 2007, qualifying investee companies are restricted to a maximum of 50 full time employees and a £2m annual fund raising limit.

It is worth remembering these changes are in addition to the ones brought in via the Finance Act 2006, most notably the gross assets measurement for VCT qualifying transactions from £16m to £8m in a bid to direct funds towards early stage businesses. Despite recent changes, the VCT industry is in good health with over £2.7bn of VCT money currently being managed by managers across over 100 VCTs (Source: www.theaic.co.uk) and with the 30% income tax relief and the possibility of tax free dividends and growth, VCTs still represent an attractive investment opportunity for high-net worth investors.

Here is a brief summary of the benefits available upon investing in a VCT for the 2009/10 tax year:

  • Income Tax rebate of 30% (Provided the investment is held for a minimum of 5 years)
  • Exemption from tax on dividends
  • Exemption from Capital Gains Tax on profits made from selling of VCT shares

The 30% income tax rebate is available not just to higher rate taxpayers but also to basic rate taxpayers, so long as you have paid as much tax as you are claiming a rebate for. Please note the tax relief should be viewed as a bonus to purchasing the underlying investment, and not the prime reason for investing in a VCT. Investors should make themselves aware of the potential downsides associated with VCTs, including investment and liquidity risks, before making a purchase.

A Word Of Warning

The value of of your VCT investment can fall as well as rise, and you may not get back the full amount invested. Furthermore, it would be unwise to purchase a VCT purely for the upfront tax relief, and try to sell immediately after the minimum five year holding period. VCTs are long-term investments. It usually takes three years to invest the monies raised and build a portfolio in qualifying investments, which are usually unquoted companies that don't lend themselves to short term horizons. VCTs should be considered as at least 7-10 year investments. In addition, liquidity of these investments is poor, with the secondary market for shares of VCT companies notoriously illiquid.

Please note, that if you download a prospectus from our website and it does not have our stamp on it then please send it to our offices. If an application is sent directly to the registrars and it does not carry our stamp, then you won't benefit from our discounted terms. Furthermore, if you have previously bought a VCT directly from the provider, and wish to top up your investment, send the application form to CFS and we will ensure you receive a discount.

Chelsea Financial Services offers discounts on execution-only VCT purchases, usually in the form of extra shares.

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Chelsea Financial Services plc is authorised and regulated by the Financial Services Authority and offers an execution-only service. We give no individual investment advice and act only on instructions received. For further information, please read our Terms and Conditions and the important notice below.

Important Notice
Past performance is not necessarily a guide to the future. The value of investments and the income from them can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. All products purchased through Chelsea Financial Services should be regarded as medium to long-term investments. Chelsea Financial Services offers an execution-only service. If you require investment advice you should contact an expert adviser. Tax assumptions are subject to statutory change and the value of tax relief (if any) will depend upon your individual circumstances.

The information on this site is intended solely for the use of those people who are United Kingdom residents for tax and investment purposes. It is not for distribution in any other jurisdiction, including the United States of America. Anyone who is not a UK resident should not continue with this site unless wishing to read about personal finances available to UK residents for informational purposes only.

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