Venture Capital Trust (VCT), how to buy?

Janin1992

I am considering buying a Venture Capital Trust (VCT). I would like to invest between £20,000 and £50,000. The objective is to obtain a 30% income tax relief for the 2023/2024 tax year. Given that there are three weeks left until the end of the tax year, is it too late to buy a VCT? Could someone recommend a good platform for buying and selling VCTs?

wmb194

Janin1992 said:

I am considering buying a Venture Capital Trust (VCT). I would like to invest between £20,000 and £50,000. The objective is to obtain a 30% income tax relief for the 2023/2024 tax year. Given that there are three weeks left until the end of the tax year, is it too late to buy a VCT? Could someone recommend a good platform for buying and selling VCTs?

If you want the tax relief then you need to go direct to the fund manager e.g., Octopus being well known in the VCT space.

Not a recommendation, do your own research etc. but it looks like it has a few raising money at the moment that'll squeak in under the deadline and it looks like you can apply/subscribe via its website or via a financial advisor.



https://octopusinvestments.com/our-products/venture-capital-trusts/

Gary1984

You could also take a look at wealthclub.co.uk

mostwelcome

Gary1984 said:

You could also take a look at wealthclub.co.uk

Seconded, you will get a better deal. 

I think what @wmb194 meant by “go direct to the fund manager” was that you only get the 30% income tax relief when buying new share issues – rather than buying existing shares in a VCT i.e. via a stockbroker from someone else looking to sell theirs.

But when you are investing in a VCT offer, it generally makes more sense to apply via a specialist broker like Wealth Club, because (a) you typically get discounts – savings on the initial charge and perhaps annual rebate; (b) you get wider choice, i.e. they have offers available from all the managers, some highlighted as 'Featured', all with reviews; (c) one place to apply, view them, get help over the phone etc., rather than need a login with various different managers (not to mention registrars…) you get the picture.

Given you are considering 20-50k I assume you're considering doing more than one, @Janin1992? 

And no, it’s not too late. There are still some decent ones open for investment. You've missed out on British Smaller Companies, Unicorn AIM and Northern, but there is still sufficient choice in my view. I'm not going to give out recommendations but there are at least five I’d look at 

wmb194

mostwelcome said:

Gary1984 said:

You could also take a look at wealthclub.co.uk

I think what @wmb194 meant by “go direct to the fund manager” was that you only get the 30% income tax relief when buying new share issues – rather than buying existing shares in a VCT i.e. via a stockbroker from someone else looking to sell theirs.

Yes, correct.

Janin1992

Thank you all for your help. Lots of information to consider.

mostwelcome said:

Given you are considering 20-50k I assume you're considering doing more than one, @Janin1992? 

I'm not sure I understand the question. I have an extra income this year, so I want to invest some in a VCT. If I have the same next year, I'll invest more.

If you're asking whether I want to invest in one company or more, I'd prefer a fund if it's available. I don't know much about individual companies, so investing in a fund seems less risky. I still want to have some money left after 5 years, so I'm not interested in very risky investments in individual companies. I'm looking for something with a good chance of being valuable after 5 years.

Does it make sense?

Gary1984

Most funds have a minimum investment amount, often around 5k. However the funds can have very different performances. Past performance is no indicator of the future but you may wish to diversify and spread the risk over a few of them.

Albion and Pembroke have done ok for me, Octopus Titan and Amati less so. Taken together plus the tax rebate they might have just about done ok. 

mostwelcome

Janin1992 said:

mostwelcome said:

Given you are considering 20-50k I assume you're considering doing more than one, @Janin1992? 

I'm not sure I understand the question. I have an extra income this year, so I want to invest some in a VCT. If I have the same next year, I'll invest more.

If you're asking whether I want to invest in one company or more, I'd prefer a fund if it's available. I don't know much about individual companies, so investing in a fund seems less risky. I still want to have some money left after 5 years, so I'm not interested in very risky investments in individual companies. I'm looking for something with a good chance of being valuable after 5 years.

Does it make sense?

Hi @Janin1992 – it almost makes sense. So a VCT is basically an investment trust – a plc set up to invest in underlying companies. When you invest in one VCT, you get exposure to all the companies it currently holds. Example: were you to invest in e.g. Octopus Apollo VCT plc, you’d have shares in that one trust, which has a portfolio of (at latest count) 45 underlying companies at various stages of growth, plus cash and whatever else they hold.

So if you choose one of the reasonable mature VCTs, you already have some measure of diversification built in. 

Because you mentioned you wanted to invest 20-50k this year, you could pick just one VCT – or, since the minimum investment is typically £3-6k each, you could invest in several different VCTs to cover more bases. So (again just for example) – if you put 20k into Maven VCTs, 10k into Molten Ventures VCT, and 5k into Hargreave Hale AIM VCT, you'd have 35k across a wide spread of 6 total VCTs, a mix of unlisted and AIM companies, with sectors from high tech to business services, under three different managers, giving you more diversification (albeit more to keep track of)

Aegis

Janin1992 said:

I am considering buying a Venture Capital Trust (VCT). I would like to invest between £20,000 and £50,000. The objective is to obtain a 30% income tax relief for the 2023/2024 tax year. Given that there are three weeks left until the end of the tax year, is it too late to buy a VCT? Could someone recommend a good platform for buying and selling VCTs?

Definitely not too late, but please always remember the adage "never let the tax tail wag the investment dog". If you can find something that you like the sound of investing in anyway, then treat the VCT (or EIS, for that matter) status as an added benefit, but don't go in just for the tax relief or you may find yourself invested in something wildly outside your risk comfort zone.

If you still want to buy, these are investments that you usually have to approach the registrar directly rather than buying through a platform because the shares are created on issue rather than being something bought on a secondary market.  VCTs probably have ties with some of the execution-only platforms so that you can subscribe for new shares and have them automatically placed in your trading account, but in reality this is just a slight administrative tweak - your application will still be processed by the registrar to make sure that you are eligible for your tax relief.  As such, it is worth looking around solely for any additional fees that brokers might charge for going into VCTs and weigh up the benefit of using such a broker vs going to the registrar directly (assuming they take direct business).

NB: haven't actually done VCT work for a few years now, so I may have missed out on recent changes.

mostwelcome

Helpful comment generally but this bit

Aegis said:

you usually have to approach the registrar directly rather than buying through a platform because the shares are created on issue

is not true, you can apply via a dedicated broker, e.g. Wealth Club as mentioned earlier which is what I use. If you go to wealthclub.co.uk/venture-capital-trusts/ you will see the list of current VCT offers, along with their commentary and how to apply via their website. 

Aegis

mostwelcome said:

Helpful comment generally but this bit

Aegis said:

you usually have to approach the registrar directly rather than buying through a platform because the shares are created on issue

is not true, you can apply via a dedicated broker, e.g. Wealth Club as mentioned earlier which is what I use. If you go to wealthclub.co.uk/venture-capital-trusts/ you will see the list of current VCT offers, along with their commentary and how to apply via their website. 

That's essentially an execution-only financial adviser rather than a platform. I know it's something of a "splitting hairs" scenario, but what they are doing is essentially what I do with VCTs only without the advice (I don't do that sort of thing on an execution-only basis because I would be far too concerned about clients investing too much money into something they don't understand, and I would be very hard-pressed to keep my mouth shut and not give advice even if it wasn't requested).

So yes, any adviser offering an execution-only service will also be able to facilitate it, but functionally going direct vs going via wealthclub or any execution only financial adviser will be more or less identical. Indeed, going via wealthclub will still leave you with shares in your own name because they will approach the registrar directly on your behalf, they might just help a little with filling in the forms.  I don't know what their fee/commission arrangements are, but it is definitely worth understanding those as well.  I believe that as these are unadvised propositions, they are still entitled to take commission, which might mean that they state their service is fee-free despite being paid, say, 5% of the amount paid in out of the initial charge on the VCT, a charge which would not be payable at the same level if taking advice.