venture capital trusts

deemy2004

As the tax year draws to a close - remember that you get 40% back on your investment in VCT's for 04/05 . Even IF your a 22% tax band payer you still get back 40% !

What are VCT's ?
They are similar to investment trusts, but have to operate under strict rules, about the types of companies they can be invested (high risk, tiny cap).

Okay VCT's are high risk ! so you should not commit more than say 3% of your portfolio. Still the 40% tax incentive is mighty enticing ! Pick a good one and you will get some growth.

Want a tip ?

A general fund, rather than a specific sector should do well. also use discount brokers such as cavindishonline to get your commission back.

I'm leaning towards one of the close brother funds.

cheerfulcat

It is very important to remember that as well as being *very* high risk, it can be difficult to sell VCT shares as the tax benefit only applies to new shares. These are not for newbies to investing.

Cheerfulcat

dunstonh

Personally, i will not advise or sell VCTs. They are high risk from an advice point of view too and many IFAs will not advice or sell them. Anything that an IFA considers high risk from an advice issue should put you on guard straight away.

deemy2004

Yes very high risk, but some are up over 200% in 5 years ...worth a punt given the tax refund on top of any gain.

cheerfulcat

Please name one that has gone up by 200% :-)

deemy2004

Okay I can't find 200% over 5 years

But CLOSE BROTHERS VCT is up 90% over 5 years with a further 63% value of the dividends so 153% gain - close .... , which is pretty good since your unlikely to fund many funds up over 5 years..

There are others up more i.e. FORESIGHT TECHNOLOGY VCT SHARES over 3 yaers is up 169% before dividends.

cheerfulcat

The performance of most VCTs over five years has been woeful -

http://www.trustnet.co.uk/vct/funds/perf.asp?sort=20&page=0&ss=0&txtS=&txtSS=&columns=&sec=all&sta=all

It *may* be a suitable form of investment for some people but for most, and especially for people who are new to investment, the advice has to be " not even with someone else's bargepole " ;-)

deemy2004

cheerfulcat wrote:

The performance of most VCTs over five years has been woeful -

http://www.trustnet.co.uk/vct/funds/perf.asp?sort=20&page=0&ss=0&txtS=&txtSS=&columns=&sec=all&sta=all

It *may* be a suitable form of investment for some people but for most, and especially for people who are new to investment, the advice has to be " not even with someone else's bargepole " ;-)

Quite right, NOT the first port of call for investments, and even then talkign a SMALL % for the LONG TERM ! At LEAST 3 years...

VCT's are small acorns.... we are planting them to see if we reap a reward many years down the road.
Afterall Microsoft started with a $50,000 purchase of the DOS operating system... Now look were that acorn has grown to !

High Risk = Small % of portfolio......... I'm going to give VCT's a shot say £6k over 5 years

Also to clarify on the Tax benefits.

If you put in £5k this tax year, you get a tax refund of 40% on THIS years tax.. So you DON'T wait for 3 years...
I.e. £5k invested today = £2000 tax refund after April (when you have sent your self assessment return in).
So the VCT has cost you £3k, and hence an instant profit. Though take off 15% for charges and say the wide spread between bid and offer.

cheerfulcat

Paul_Varjak wrote:

You must keep the VCT for at least three years, otherwise the Inland Revenue will 'clawback' both the 40% tax break that you got upon purchase and any Income tax relief you got on dividends paid and, if you make a capital gain, you may have to pay Capital Gains tax as well!

Exactly! And when the time comes to sell, who is going to buy the shares without the tax advantage? And the CGT thing works both ways, AIUI, so you can't even use the losses to offset gains elsewhere...

deemy2004

Yeh, but so what ?

After 3 years, they are basically Investment trusts... No longer VCT's

So the value is dependant upon the underlying assets the trusts are invested in,

cheerfulcat

No - they mostly trade ( like many ITs, in fact ) at a discount to NAV; 76 out of 93 VCTs are trading at a discount, sometimes considerable .

http://www.trustnet.co.uk/vct/funds/perf.asp?sort=11&page=0&ss=0&txtS=&txtSS=&columns=&sec=all&sta=all

And it doesn't matter what price they are, if no-one wants them, you're stuck with them.