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VCT tips: The funds with an instant 30pc boost (The Telegraph)

by Richard Dyson

 

 

 

Venture capital trusts offer a 30pc upfront tax break and great income - Jerry Owston takes 7.5pc a year. But there are risks

They sound risky and they are - but, for many, the combination of tax breaks and potential returns makes venture capital trusts (VCTs) extremely attractive.

VCTs are being promoted again ahead of the end of the tax year, and this year there is a record choice on offer, with the fund managers who provide the trusts seeking to raise £600m.

The sector is said to offer especially strong potential: the recovering economy is helping small firms grow, but at the same time finance from banks and other traditional sources remains scarce. This gives investors "considerable opportunities to provide finance", according to Bestinvest, a broker that for years has monitored the VCT market.

VCTs are among a handful of investments given special tax status by the Government. The quid pro quo arrangement is that investors get tax concessions but in return have to put their money to a specific use, in this case financing start-ups. The VCT managers, the best of whom have long track records in private equity or other areas of small company finance, are the middlemen who pool investors' money into funds or "trusts" and parcel it out to hand-picked, qualifying new ventures.

VCTs and their equivalent predecessors have now been around for several decades and many funds have performed exceptionally. Not all, however.

 

2014: WHICH VCTS ARE BEST?

Interested in VCT investing? The minimum sum for most is £3,000 or £5,000, and most remain open to new money until April 5 - unless they are fully subscribed earlier.

The best way to invest is via a broker such as Hargreaves Lansdown or Barclays Stockbrokers.

Independent analyst Martin Churchill of Tax Efficient Review rates VCTs each year and said "top scores" went to Baronsmead, Mobeus and Proven among the "generalist" trusts (see main story). In the "planned exit" group, he rated the Foresight Solar "C share" offer and Puma 10.

The trusts recommended by broker Bestinvest were also Baronsmead and Mobeus of the "generalists" and Puma 10 and Downing Three among the "limited life" category. Charles Stanley Direct's Ben Yearsley, another experienced VCT spotter, favoured Mobeus, Maven Income & Growth and British Smaller Companies among the "generalists". Lists of available VCTs are published at Taxefficientreview.com.

One contented VCT investor is Jerry Owston (pictured above), a power station engineer from Berwick. A share investor since the Eighties, he later built up holdings in investment trusts and VCTs. Since 1995 he has owned Baronsmead VCTs, using the dividends paid each year - a return he reckons has averaged 7.5pc annually - to add to his holdings. "The income has been consistent, fair weather and foul," he said. "I won't sell them; I intend to retire early and they will be part of my pension."

The best funds pay income of up to 7pc or 8pc a year.

 

See the full article here on the the Telegraph website.