Venture Capital Trusts and Enterprise Investment Schemes are the latest incarnation of the Government's push to use tax incentives to channel private investment capital into small companies which would otherwise have to rely on expensive and unreliable bank finance. Investors can put anything from pounds 1,000 to pounds 100,000 into a VCT or EIS and receive an immediate 20 per cent tax relief against income tax and postpone any CGT due on the capital. After five years, investors can sell their investment without any liability to CGT on the profits, and any loss can be offset against other gains. They ideally appeal to wealthy investors, but VCTs at least should actually be low-risk if long-term investments.
They have been running since April last year and got off to a slow start, probably because investors were put off by the chequered performance of Business Expansion Schemes. But the approach of the year end has brought at least a dozen recent offers, some of which, such as Advent VCT, Close Brothers VCT, Gartmore VCT and Quester VCT, are still open for investors.
Unlike BES schemes, which invested in the very early development of single companies, VCTs are invested in a range of companies that have already established some sort of track record. Managers can only invest pounds 1m in any one company and most intend to have a portfolio of at least a dozen companies, into which they can filter cash over a three-year period to avoid the risk of indigestion.
The investments may not yield much in the way of dividends, but investors in a VCT can claim 20 per cent tax relief on their investment and postpone payment of and CGT due on the money they invest. So instead of paying pounds 40,000 CGT on a pounds 100,000 gain, a wealthy investor could actually reinvest pounds 100,000 in a VCT and reclaim another pounds 20,000 in tax.
Enterprise Investment Schemes were introduced in 1994 and are intended to attract investors with business experience who could contribute to the management as well as the financing of individual companies. EIS schemes are particularly suited to raising capital for residential property developments. Current offers include Apart Residential and Pathfinder Developer Two. Enterprise Zone Trusts (EZT) are even more specialised investments, channelled into commercial property developments in specific parts of the country, such as Peterlee, Nottingham and Telford.
Professional advisers and investors who are seriously considering an investment in a VCT, EIS or EZT can get detailed advice on the current offers by subscribing to the Tax Shelter Reports published by the Allenbridge Group, based at 16 Bolton Street, London. They cost pounds 295 for a direct debit subscription.