A venture to close equity gap

SOPHISTICATED investors prepared to accept greater risk now have the chance to include venture capital trusts as part of their portfolios, writes Alison Eadie.

Venture capital trusts, first announced in the November 1993 Budget, are a new form of tax-efficient investment. They are expected to be up and running by late summer, once the Finance Bill gains Royal Assent. As yet only two fund managers have committed themselves to launching VCTs, although several more have expressed interest.

The fine detail is still being thrashed out between the Inland Revenue and the British Venture Capital Association. But the broad parameters are known.

In his first Budget, Kenneth Clarke, the Chancellor, offered exemption from income tax on dividends and capital gains tax on the disposal of shares for VCTs. Since then, he has added two more tax breaks to VCTs. Income tax relief at 20 per cent is now allowed on up to £l00,000 subscribed per year in a VCT, provided the shares are held for five years.

Rollover relief from capital gains tax is also on offer, as long as the gain from the sale of any asset is reinvested in a VCT.

Mr Clarke's refusal to bow to the BVCA's lobbying and raise the investment limit per company above £1m means managers with higher overheads doubt they can run VCTs profitably. Murray Johnstone, in Glasgow, is one company that believes it can do so, however.

The firm says its regional infrastructure, with offices in Manchester, London and Birmingham, gives it the right cost base to make money out of VCTs. It plans to raise £30m for companies needing expansion finance, for a few earlier-stage projects and possibly for small management buy- outs - if rules permit. Iain Tulloch, investment director of Murray Johnstone, thinks the £1m ceiling is right.

The key is to tap into the regions for potential businesses and into the "business angel" network of investors prepared to back small new companies, both with finance and management input.

One aspiring businesswoman who has benefited from an injection of private capital is Sam de Teran, a designer. About 18 months ago she received help from the Milton Group, a privately run firm interested in backing the start-up of her design and wholesaling business.

Since then her business has continued to prosper. Ms de Teran said: "Things are going fine. My sportswear is now sold at Harrods and Harvey Nichols, Fenwick and House of Fraser. When the Milton Group first invested in me I was only designing swimwear. I have now expanded to include gym, tennis and ski wear."

Mr Tulloch hopes angels will use their Enterprise Investment Scheme tax relief to reinvest with Murray Johnstone and will give the benefit of their business experience to small and growing companies in the VCTs.

Murray Johnstone's four offices will have to find a total of 35 investments over three years, assuming an average investment of £600,000.

Rothschild Asset Management plans to raise £10m for a VCT specialising in food companies, which it claims are more easily understood by private investors than hi-tech companies. The average size of investment is expected to be £500,000 to £750,000.

There are still some doubts over VCTs. Some fund managers are concerned that pressure to invest quickly could harm fund performance. This is because VCT rules stipulate that 70 per cent of the money raised must be invested in unquoted companies within three years. 3i, Britain's largest venture capital provider, with a network of offices that makes it a natural for VCTs, has not yet thrown its hat into the ring.

Charles Richardson, director of corporate affairs, said 3i was very positive about VCTs but might use other fund managers' trusts as syndication partners rather than launch its own.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory