Rules for limited life Venture Capital Trust expected to change in April

News - Tax

Written by Ray Clancy

Wednesday, 03 March 2010 10:13

This tax year could be the last chance for investors to buy into a limited life Venture Capital Trust and obtain the 30% tax relief available amid rumours that rules will be changed in April. Financial advisers believe that the government may change VCT qualifying rules potentially making VCT investments riskier and signalling the end of limited life VCTs, also known as planned exit VCTs.

‘If you are interested in VCTs and considering a limited life investment, now could be your last chance because any changes are unlikely to be retrospective,’ said Nick Scarrett, head of investment and pension services at Fair Investment Company.

It has a new non-advised VCT service which offers clients access to three leading limited life VCTs, each with a 2.5% discount on the standard initial charge.

‘VCTs, which currently offer 30% tax relief on investments up to £200,000 each tax year, are probably one of the least understood investment products on the market,’ explained Scarrett. ‘But they can be a good option for many investors because they offer a combination of potentially high dividend yields and great tax breaks, which is why we are really pleased to be able to offer this new service,’ he added.

In the past, smaller company investment has really only been a realistic option for very wealthy investors and institutional investors but the introduction of VCTs has made smaller company investment available to individuals and has limited the risk of such an investment through portfolio diversification and tax relief, according to Scarrett.

‘However, investors should not invest solely for the tax-breaks as VCTs represent a high risk investment strategy,’ he warned.

The Fair Investment Company service displays VCTs in clear tables, splitting them into two categories; Limited Life (wind up after a set period, giving investors a potential exit point) and Generalist (primarily invest in unquoted companies in a variety of sectors and stages of development), making it easy for people to understand the products and then apply.

‘In the 2009/10 tax year, total investment in VCTs is on course to reach £250 million, a 70% increase on the previous tax year. VCTs are predicted to continue to rise in popularity going into the next tax year and we are confident our service will help facilitate that popularity,’ said Scarrett.