How Best to Invest in Stocks and Shares
SHARES
A means of investing in a special type of Investment Trust and obtaining tax relief at 40% (on subscriptions made after 5 April 2004 and before 6 April 2006) on the money you invest. The Venture Capital Trust holds a portfolio of stocks and shares, of which (after 3 years) at least 70% must be in new shares and loan stocks of unquoted companies which are usually recently formed and don't have to meet the conditions for those quoted on the Stock Exchange. The least risky Trust can have a portfolio (after 3 years) with 50% invested in new ordinary shares of unquoted or AIM or companies, 20% in new loan stocks of unquoted companies and 30% in gilts or loan stocks or shares in quoted companies. Your money is tied up for 3 years; if you sell earlier, you lose the tax relief.
Who can invest Anyone 18 or over.
How worthwhile This is a form of investment with a limited track record. There is a high chance of failure of the unquoted companies which the Venture Capital Trust invests in although a Trust may invest in a reasonably large spread of such companies. However the 40% tax relief is available even if you are not a 40% taxpayer.
Minimum Minimum £1,000.
Maximum £200,000 for all investments in all schemes in each tax year from 6 April 2004.
Suitable Lump sums.
Money back You should be able to sell the shares after you have held them for 5 years.
Interest This will be from the part of the portfolio of the Trust which is invested in loan stocks and quoted companies. You also hope to make a capital gain by selling for more than you paid. The trust can distribute gains on its own investments (if there are any) to shareholders as tax free dividends.
Tax You get income tax relief on your investment at 40%. From 6 April 2004, the previous capital gains tax deferall for subscriptions has been removed. When you sell the shares after 3 years or more, you are exempt from capital gains tax on all gains on the money invested in Venture Capital Trusts. Any dividends are exempt from income tax.
Fees to pay The launch costs are equivalent to an initial fee of 3% to 7%. Yearly running costs can be high at around 3% a year plus incentive fees to the managers.
Passbook None. Share certificate issued.
Children Unsuitable.
Risk Very high. Some shares in the Trust's portfolio are likely to go bust. It is hoped that the rest more than make up for this. As there is no trustee to look after your money, only invest in a scheme sponsored by an established financial body.
How to invest Get advice from a magazine, newspaper, stockbroker or independent financial adviser on which Trust to choose. The Tax Shelter Report analyses new offers. The Investors Chronicle writes about these often. Do a search at their web site for VCT.
Where from Shares in Venture Capital Trusts are in the form of limited offers.
Other types of direct investment
in shares
How Best to Invest in Stocks and
Shares
Contents
Last updated 9 September 2004