Choosing a VCT
There are a few important points to bear in mind about choosing a VCT.
First of all, to claim the full set of tax reliefs, you must invest in new VCT shares. In other words, you cannot just buy VCT shares on the stock market, they have to be newly issued.
In practice, this means you subscribe for the shares through a VCT manager, such as Albion, Maven Capital Partners or Octopus. Not all VCT managers have an offer open for subscription at any given time, so you will need to monitor a list of open offers, then investigate further.
Lists of open VCT offers are provided by the likes of Tax Efficient Review, Wealth Club and Micap.
Most VCT offers are what is called 'top-up offers' – an offer of new shares in an existing VCT. This gives you the advantage of going into a VCT that may have already built up a portfolio of investments, maybe even a few lined up ready to sell.
It is worth getting a sense of how mature a VCT is before you invest. For example, if you were to invest in an entirely new VCT, you would not expect any dividends in the first two or three years, as the VCT would be putting money to work and the underlying businesses would not have had enough time to grow.
The same would be true if you invested in a new share class of an existing VCT.
Most VCT fundraising tends to happen later in the tax year, although the March rush is less intense than it used to be. This is because popular VCTs can fill their offers quite quickly. Sometimes an offer may be open for just a few days before it is filled.
Generalist VCTs and Aim VCTs
When choosing between VCT offers, you should be aware that there are two main types of VCT.
Most common are generalist VCTs, each of which invests in a spread of mostly private (unlisted) companies. There are also a number of Aim VCTs, which invest in companies quoted on Aim.
Each type has its pros and cons. Generalist VCTs have a far greater choice of companies to invest in; Aim VCTs are not just limited to companies on Aim, but companies that meet the VCT rules on age, size and so on, and which are raising new money (since existing shares are not qualifying VCT investments).
On the plus side, Aim VCTs benefit from the companies they invest in being quoted. It is easier for them to take profits in successful investments, or exit poorly performing ones early – although this should not be overstated, as Aim shares can be pretty illiquid.
