Internet investor: Venture into tax-free trusts

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The Independent Online
The proposed limit of pounds 50,000 that can be held in an Individual Savings Account (ISA) will have an immediate impact on anybody who has invested more than this in personal equity plans (PEPs) and tax-exempt special savings accounts (Tessas). It has been suggested that a one- off transfer of a greater sum into an ISA may be allowed. It is also possible that the investment limit may be raised, either as a result of the consultation process or in the future, perhaps by a figure linked to inflation each year.

However, the existence of a overall investment limit, whatever it is, where none existed before on PEPs means we should take a second look at alternatives that generate tax-free income and capital gains.

Venture Capital Trusts (VCTs) were introduced in the 1995 Finance Act. Investors are exempt from all income tax on dividends received from VCTs and from all capital gains tax on the disposal of VCT shares in a similar way to holdings in a PEP.

In addition, subscribers for new ordinary shares in VCTs are entitled to claim income-tax relief at the lower rate of income tax - currently 20 per cent - in the year the shares are issued, provided they are held for at least five years. Subscribers for new ordinary shares in VCTs are also able to defer a capital gain, up to the amount subscribed. The maximum you can invest in a VCT in one tax year is pounds 100,000.

By the nature of the beast, VCTs are going to be riskier investments than PEPs and Tessas have been and the ISA will be. Nevertheless, anyone likely to run up against the ISA investment limit in the very near future should perhaps be prepared to take more of a risk with other investments.

Where to start? Well, the British Venture Capital Association (BVCA) website calls itself the most comprehensive source of information on the UK venture capital industry on the internet. It probably is. The BVCA is dedicated to promoting the venture capital industry in the UK and its site lists VCTs and contact details for their fund managers.

Venture Capital UK is a new website, due to go live on 16 February. It is flagging itself as a one-stop source for information on venture capital in the UK. It intends to include information on all venture capital funds, business angels, start-up finance and equity finance.

You can also browse through the prospectus of Foresight Technology. The VCT broke new ground in offering warrants alongside ordinary shares and in publishing its prospectus on the internet. Unfortunately, the offer closed in November, after raising pounds 10m. The site has not been updated since, which is a pity, given the VCT's aims of investing primarily in companies involved in computer software and hardware, smart cards and the internet.

However, there are a number of VCTs in the pipeline, Quester VCT 2 is open for subscription now, Murray VCT 3 launches in February and the Oxford Technology VCT is planned for March. Others have yet to announce launch dates. Of the three fund managers which have confirmed timetables, only Murray Johnstone has a significant presence on the web. The firm has also its own generic guide - A Murray Johnstone Guide to Venture Capital Trusts - to assist anyone who may be interested in investing in a venture capital trust.

British Venture Capital Assoc:

Venture Capital Network:

Foresight Technology VCT:

Murray Johnstone: