By Michelle Williams, AngelNews
Venture Capital Trusts were started in the 1995/96 tax year by the then Conservative Chancellor of the Exchequer Kenneth Clarke. In their first year 12 funds raised £160m.
The peak year of investment was 2005/6 when £780m was raised by 82 funds. In 2009/10 £340m was raised by 68 funds, but there were 122 VCTs in existence. Just under £4bn has been invested in VCTs since they were launched.
29% of the investment (£98.6m) made into VCTs in 2008/9 was made by just 4% of investors using the maximum amount they could invest. There are VCTs to suit all types of venture investors ranging from high tech funds to others that are focused on investing in asset backed deals. There is also an increasing number of Clean Tech VCTs, e.g. the Acuity Environmental VCTs www.acuitycapital.co.uk doing clever things that help Climate Change.
Generally speaking VCT fund managers are getting increasingly innovative in what they are offering investors both in terms of downside protection and upside opportunity. The recently launched Albion Top-up offer, for example, will be offering monthly tax free dividend income see www.albion-ventures.co.uk . Many VCT fund managers have international presence such as Beringea, www.beringea.com and invest in the UK based on their global knowledge which gives them a significant advantage in backing world class deals. Others such as British Smaller Companies VCTs www.yfm.co.uk/venture-capital-trusts benefit from having a deep network in virtually every region of the UK which helps them dig out fantastic tech and generalist opportunities.
You can shelter up to £200,000 income tax per year by investing in VCT new issues. Buying shares in new issues gives you a 30% income tax break and the right to tax free dividends and capital gains. Buying shares in the secondary market still gives you the right to tax free dividends and capital gains.
If you want more information, there is loads of background information on VCTs on the Association of Investment Companies website - everything from financial information to lists of portfolio companies. www.theaic.co.uk/Search-for-an-investment-company.
The Enterprise Investment Scheme was launched in the 1993/94 tax year. It replaced the old BES scheme.
Fondly known as EIS, over £7bn has been raised under the scheme since its launch. Around £700m a year is raised under the scheme with just over 2,000 companies raising money each year. This compares with around £4m in the first year of the scheme's existence, but is still well down from the peak fundraising year in the middle of the dot com boom in 2001 when over £1bn was raised.
1% of investors (around 200 people) invest the maximum amount of £400,000 each year under the scheme. This is about 15% of the total money raised under the scheme.
EIS investment is one of the most diverse asset classes in the UK. It ranges from investments in individual companies to a wide range of EIS funds. Increasingly EIS funds are the rage amongst private investors because of the quality of the fund managers entering the market. Many established VCT fund managers are now launching EIS funds, including YFM Group, which manages the British Smaller Companies VCTs, based on the success of groups like Oxford Capital Partners www.oxcp.com, HG Tech Fund www.hgtechfund.com and Anglo Scientific www.angloscientific.com .
Buying shares under the EIS scheme gives you a 20% income tax break and the right to roll over unlimited capital gains. All gains under the scheme can be rolled over for capital gains purposes and you get Inheritance Tax Relief too. You also get loss relief if your investment fails. Full details of the tax breaks can be found here: www.eisa.org.uk.
You will be able to meet several of the most forward thinking VCT and EIS fund managers at The VCT and EIS Investor Forum™ on 23rd November 2010 in London www.thevctandeisinvestorforum.com
An early bird offer is available until 31st October 2010.
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