Venture Capital Trusts Changes in 2016

This year’s venture capital trusts (VCT) offerings are the first under a changed set of investment rules.

This year’s venture capital trusts (VCT) offerings are the first under a changed set of investment rules.

VCTs offer several attractive tax benefits:

Unsurprisingly such generous tax breaks do not come without strings attached, the most significant being a five-year term to avoid clawback of income tax relief and strict investment rules. Last year several important changes were made to those investment criteria in response to revised EU state aid rules:

These new constraints have forced some VCTs to reconsider their investment strategy. In particular, VCTs that relied on management buy outs (MBOs) are now no longer able to do so because of the rule against acquiring an existing business. The end of MBO finance by VCTs will increase investment risk, as the emphasis moves towards younger enterprises.

This year may see a shortage of VCT supply as managers absorb the changes and develop new strategies. If you wish to take advantage of VCT investments as part of your year-end tax planning, please contact us now so that we can keep you informed of availability. The most attractive issues could disappear very quickly – one recent £10m issue was taken up in just four days.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.