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What is a Venture Capital Trust?

20/10/2020

As of September 28th 2020, it is 25 years since the very first Venture Capital Trusts (VCTs) were listed on the UK stock market. Now, the London Stock Exchange features over 70 VCT companies – but what are they, and why do people invest in them?

What are Venture Capital Trusts
A Venture Capital Trust is a trust that aims to make money by investing in small UK businesses that meet certain criteria. These businesses are either small or in a very early phase post-start-up – and must either be unlisted, or listed on the AIM. Each VCT will generally hold between around 20 and 70 of these companies, which need investment in order to grow further.

These companies can cover a range of niches, and companies like Virgin Wines, Graze and Zoopla – all of which were once VCT-backed – have now become household names. At least 80% of a VCT’s assets must be companies that meet certain criteria – and investment in a VCT means that you hold shares in the VCT itself, not in the individual companies. This means that as more companies are added to a VCT, you get exposure to an extended portfolio.

Why do investors choose Venture Capital Trusts?
Because they focus on small businesses looking to grow, VCTs can offer high returns – but also high levels of risk. One of the most attractive elements to many, though, is the tax advantages that investing in VCTs offers, in recognition of the fact that such businesses are vital for the economy. These advantages include:
Up to 30% tax relief on VCT subscriptions, up to £200,000
Tax-free dividends

Zero capital gains tax on capital gains
VCTs are seen as a long-term investment – and, as such, many believe that they are a good choice of investment vehicle during the current climate. As Stuart Veale, chairman of the Venture Capital Trust Association, says, “As we emerge from the pandemic, the VCT industry has the experience, network and funding to drive forward the economic recovery, backing innovative companies to deliver substantial growth throughout the UK”.

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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