Should I invest in Venture Capital Trusts?
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Matthew Hinchliffe is an Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners, advising on Venture Capital Trust investments.
I’ve recently inherited £120,000 from my father and want to put it to good use in a way that gives me a healthy return. I’ve read that Venture Capital Trusts involve investing in growing businesses and that they can be really good from a financial perspective. Should I put my money into this type of investment?
Matthew Hinchliffe of Smith & Pinching responds:
It’s important to be aware that Venture Capital Trusts (VCTs) are a high risk investment option, so they are only generally suitable for people who have a good understanding of investing and who are comfortable with a high level of risk.
VCTs involve investing in emerging companies who are looking for investment to help them develop their business. The money in a VCT will come from a group of investors and will be invested in a number of different target companies. It’s because these companies are either just starting out or planning significant growth that they come with a higher risk of failure than more established companies.
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For the right investor, VCT investments are tax-efficient: they provide tax relief at 30pc on anything up to £200,000 per year that you invest in shares in a new VCT, depending on your tax liabilities – you can only claim relief against the amount of income tax you must pay in the UK in the tax year you invest. Shares must be held for at least five years to get the tax relief and it’s worth noting that, although any gains you may make when you sell the shares are free of Capital Gains Tax, there’s no guarantee that there will be a gain.
When providing investment advice, we will assess your investment risk profile before making a recommendation. We will also find out all about you, your current financial position and your goals before giving advice. In most circumstances, we would recommend a diversified portfolio that would incorporate a range of different types of investment solutions to make up a portfolio that is suitable for you. We can tailor your portfolio to your preferences if you wish to use your inheritance to help companies in a specific way – for example, you might want to support socially responsible companies.
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I strongly recommend that you get independent financial advice so that you invest your inheritance in a way that is right for you.
VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital. The value of your investment can go down as well as up and you may get back less than the amount invested. Any opinions expressed in this article do not constitute advice. They assume the 2020/21 tax year and may be subject to change.
For more information visit www.smith-pinching.co.uk