VCTs: Economic recovery means exciting times for venture capital trusts

VCTs: Economic recovery means exciting times for venture capital trusts
Written by:
Veselin Valchev
10th March 2014

Hargreaves Lansdown’s Adrian Lowcock tajes a look at why investors should consider venture capital funds in 2014 aong with commentary from Richard Troue, Head of VCT Research at Hargreaves Lansdown:

VCTs are prospering in 2014

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Economic recovery in the UK appears to be taking hold and smaller companies are often the first to benefit.  This should provide a fertile hunting ground for VCT managers, and many of those we have spoken to are finding plenty of investment opportunities.

Interest rates are likely to remain at record lows throughout 2014. Tax-free dividends are the primary source of returns from VCTs. Yields in excess of 5% are available, even before considering the effects of VCT tax relief.

Contributions into pension schemes are being curbed from April 2014. For investors who have used their full ISA and pension allowance VCTs are a great tax-efficient investment vehicle.

Tax benefits of VCTs

Income tax rebate

If you are a tax payer you will receive a tax rebate of up to 30% when investing in a new issue of shares in a VCT or a top-up.
You can invest up to £200,000 each tax year (you can only claim the tax rebate on the income tax you have paid).
Must also hold onto the shares for five years to permanently keep the tax rebate.

Capital Gains Tax relief

There is no Capital Gains Tax to be paid on any gains made from the disposal of a VCT.

Tax fee dividends

Any dividend paid from the VCT is received net of the 10% dividend tax credit and is not liable to additional tax.

3 VCT ideas for 2014

Maven Income & Growth VCTs

There are six portfolios investing in over 50 private companies.
Maven have a particular specialism in the oil & gas sector and the VCTS have a marginal bias to this area.
Maven invests through MBOs and management buy-ins (MBIs) – where an external manager or team looks to buy the business.

Richard Troue, Head of VCT Research at Hargreaves Lansdown:

“Maven’s experienced and well-resourced team has a strong track record of delivering regular dividends to investors. They only invest in established, cash-generative companies on sensible earnings multiples. They nurture and develop these companies, helping them make operational improvements or grow sales, to achieve their full potential.”

British Smaller Companies VCTs 1 & 2 (BSC & BSC2)

Annual dividend targets for BSC and BSC 2 are 5.5p and 4.5p.
The VCTs have a bias towards Software, IT, Business Services and Healthcare businesses.
In August 2011 BSC shareholders received an 18p special dividend following the partial sale of GO Outdoors.

Richard Troue:

“This is a high-calibre generalist VCT. The team aims to blend companies operating in traditional industries with those developing and applying new products and services. This VCT could complement other ‘core’ generalist VCTS as part of a well-diversified portfolio.

Hargreave Hale AIM VCT 1 & 2

Richard Troue:

“The Hargreave Hale AIM VCT 1 & 2 are managed by a strong and experienced team that are among the best in the VCT industry. They look to invest in a selection of AIM listed businesses diversified by industry sector and will make use of cash and fixed-interest investments if their outlook for stock markets is cautious. This could be a good choice for investors seeking an AIM VCT.”

VCT risk warning

VCTs are aimed at sophisticated wealthier investors who can afford to take a long-term view and can accept the inevitable falls in value with a view to making a longer-term gain. The hands on nature of Venture Capital Investing means costs are higher and investors should ensure they are comfortable with this before investing.  

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