Tax-Free savings: Capital concept for risk takers

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The Independent Online
You've invested all you can in PEPs and now in ISAs. You have all the life assurance you need, you are putting enough into your pension and have enough money put aside for a rainy day. After all that, it can be difficult finding other tax-efficient ways of investing.

If you don't mind very high risk then you could consider venture capital trusts (VCTs) or even investing directly in start-up companies through enterprise schemes (EIS). Be warned: these schemes are not for the unsophisticated. The tax benefits are very generous however, says Donald McKinnon of Matrix Securities.

VCTs were introduced in the 1995 Budget to stimulate investment in small UK companies, either new start-ups or too tiny to be listed on the Stock Exchange.

Investment rules for VCTs, and similarly EIS, are quite complex. You can invest up to pounds 100,000 per tax year in them, and you will receive all the income and growth in the value of the shares free of all tax. In addition, if you purchase shares at launch, you also qualify for 20 per cent tax relief on the money you put in, providing you hold the VCT shares for at least five years.

But remember, these are high-risk investments. The managers can only buy into companies worth less than pounds 10m. They may well be new enterprises in innovative hi-tech or biotechnology areas. By their very nature, small and start-up companies can be very speculative. They are more likely to go belly-up than their larger competitors.

Finding out what is offer can be quite difficult: "Not many independent financial advisers actively look at EIS," says Mr McKinnon. "Often investors come to us directly for the prospectus rather than ask their IFAs for advice."

While film production companies are among those seeking direct investment through the EIS scheme: "It's better to look for companies that have really good growth prospects," says Mr McKinnon.

Currently, Matrix has three such schemes on offer:, a new internet-based travel agency, is trying to raise pounds 2.75m. It's run by Darryl Mattocks who founded and sold the Internet Bookshop to WH Smith last year.

Telecom Plus, which buys telephone band width which it then sells on to customers, undercutting the price of BT telephone calls by at least 24 per cent.

Oxford Natural Products needs pounds 2m to finance its production of drugs from whole plant extracts. The market for natural remedies is showing rapid growth.

Contacts: Matrix Securities, 0171-292 0825.