As seen on MoneyWeek: three VCTs for the end of the tax year
Archived article
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
The tax burden is at its highest since 1949, increasingly weighing on higher earners. And it’s about to get worse. Come 6 April, more people will be dragged into the higher and top rates of tax, whilst those already caught will see their tax bills rise.
More and more experienced investors are turning to Venture Capital Trusts (VCTs).
Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. When you invest in early-stage businesses you should expect some to fail. VCT investments are high risk and only for experienced investors. You could lose all your capital: you should not invest money you cannot afford to lose.
Three VCTs for the end of the tax year
When you invest in VCTs, you could receive up to 30% income tax relief plus tax-free dividends – this could be particularly valuable once the tax-free allowance for dividends is halved. Tax rules can change and benefits depend on circumstances. You can invest up to £200,000 a year.
VCT tax reliefs have so far survived unscathed the raft of tax-grabbing rules of the last few years. One of the reasons is VCTs provide essential capital to dynamic young businesses – a driving force of the UK economy – the tax relief is an incentive for private investors and a way to mitigate the risks involved.
Baronsmead VCTs - £8.5m left
The two Baronsmead VCTs have a history that goes back to 1995 and today are two of the largest and most diverse of all VCTs.
Together, they give investors exposure to a portfolio of over 85 companies: a mix of AIM-quoted and private companies, old-style management buyouts and newer early-stage growth investments. The manager, Gresham House, invests across different sectors but prefers technology companies, especially those selling to businesses.
The VCTs target an annual dividend yield of 7% of NAV – one of the most generous policies in the market – and have achieved this in each of the last five financial years. Past performance is not a guide to the future, dividends are variable and not guaranteed.
- Initial saving via Wealth Club: 1.5%
- Net initial charge: 3%
- Annual rebate: 0.10% for three years
British Smaller Companies VCTs - £13m left
The long-established British Smaller Companies VCTs have a loyal following among investors and a track record of exits.
When you invest, you get exposure to 35 companies, predominantly providing business services. The largest holding is business intelligence analytics platform Matillion – the holding is currently showing an unrealised return of 14x. Past performance is not a guide to the future.
The VCTs don’t state a dividend target, but the five years to 31 December 2022, the two VCTs paid total dividends per share of 38.5p (BSC) and 27.8p (BSC2). Dividends are variable and not guaranteed.
- Initial saving via Wealth Club: 2%
- Net initial charge: 3%
- Annual rebate: 0.10% for three years
Octopus Titan VCT - £80m left, 3p interim dividend
With a portfolio of over 115 companies and net assets of £1.1 billion (December 2022), Octopus Titan VCT is the largest VCT and one of Europe’s largest venture capital funds.
Manager Octopus Ventures seeks “pioneers with global ambitions” whom it believes can achieve a 10x exit on the value of Titan’s initial investment – not guaranteed. Octopus Titan has built a long track record of investing in some of the UK’s fastest-growing technology companies, from Zoopla, the first VCT-backed $1 billion company to fashion marketplace Depop and leading pet insurer Many Pets.
The VCT targets annual dividends of 5p per share; in the 10 years to December 2022, it has paid cumulative dividends of 91p per share. Past performance is not a guide to the future, dividends are variable and not guaranteed. The VCT has declared an interim dividend of 3p per share – new investors should qualify.
- Initial saving via Wealth Club: 2.5% (3.5% existing investors)
- Net initial charge: 3% (2% existing investors)
- Annual rebate: 0.10% for three years
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.