VCT guide

68 69 CASE STUDIES CASE STUDIES 1. High growth potential • Over £8bn invested into VCTs since 1995 • ‘Risk-to-capital’ requirement means focus in on investments with higher growth and risk potential 4. Rules for VCTs • 80% of investments deployed in qualifying assets within 3 years of raise • Up to 20% non-qualifying investments allowed • At least 30% of all new funds must be invested in qualifying holdings within 12 months of the end of the accounting period in which the VCT issues its shares • Do not retain more than 15% of income from shares and securities • Do not hold an investment in a company that exceeds 15% by value of the VCT’s total investments • Only invest in qualifying holdings (with certain permitted non-qualifying exceptions) • Only make minority investments (less than 50%) in investee companies 2. Potential tax benefits • Up to 30% income tax relief • 100% income tax relief on dividends • Tax-free capital growth • All subject to permitted maximum investment amount of £200,000 per annum 3. Potential risks • Investment risk of smaller companies • Liquidity • Tax risks • Regulatory risk 6. Knowledge-intensive companies • Benefit from more generous rules • £20m lifetime investment raise limit • £10m per company per year investment limit • 499 employee limit • 10 year age limit Final summary 5. Rules for qualifying investee companies • £12m lifetime investment raise limit • £5m per company per year investment limit • 249 employee limit • 7 year age limit • Unquoted (other than AIM) • Qualifying trade GUY TOLHURST MANAGING DIRECTOR, INTELLIGENT PARTNERSHIP Closing Statement Since their launch in 1995, Venture Capital Trusts (VCTs) have raised over £8 billion in just under a quarter of a century, making them an important source of investment for small businesses and a vital contributor to the UK economy. However, the changes announced in the Autumn Budget 2017 have refocused the market and raise important questions over when and where it is right for financial advisers to recommend a client invests in VCTs. In particular, the ‘risk-to- capital’ condition that now applies means that potential investors will need to be fully aware of the risks to their investments and understand what the pitfalls might be. The new legislation is designed to ensure the focus of tax efficient investments remains trained on helping those small businesses that really need it, rather than providing a safe haven for money in companies that are able to stand on their own feet. And it appears that the move has not been interpreted as a regressive step: the latest figures from the Association of Investment Companies show VCTs raised £731 million in 2018/19 - the second highest amount since their inception - despite the changes. I hope this guide has provided a useful reference to not only the most recent changes to the world of VCTs, but a thorough overview of the rules and framework in which VCTs operate. It is intended to provide the information you need to advise clients interested in VCTs and we will regularly update it so you can be confident of being fully up-to-date. We at Intelligent Partnership passionately believe that equipping advisers with the tools to support their clients is a vital cog in helping investors find appropriate homes for their money, in a way that can help small businesses across the country to grow and prosper. To that end, we provide a variety of guides and reports covering not only VCTs but also markets such as Business Relief and the Enterprise Investment Scheme, which together can broaden the basis on which advisers support their clients. FINAL SUMMARY