In Focus: Tax  

Q&A: How VCTs attracted the income-seeking investor

DH: Our investor surveys over the past few years suggest that a significant majority of VCT investors hold a diversified portfolio of investments.

With each VCT itself generally having 30-50 investments, there is a diversification that mitigates the risk.

Article continues after advert

Despite the returns for individual VCTs having a higher degree of volatility, holding multiple investments in multiple VCT funds can help to mitigate this risk through diversification.

Looking across the sector recently, Octopus, Mobeus and Mercia have had strong returns from individual investments including Cazoo, Parsley Box, Virgin Wines and Agilitas.

Last year saw Gresham, YFM and Maven also see strong returns with the sales of Glide, Eikon and Global Risk Partners, and a strong performance from the Aim market.

At the time of the first investment by a VCT, a business is usually around 4-6 years old, employs between 30-40 people and has sales of £2-3m receiving around £2.25m on average. 

Investing in unquoted businesses requires more than just one company and the path to this creation is highly labour intensive, with often two or three fund managers working with a single investment.

In exchange for the tax relief, the government requires investment to be where there is a market failure.

This means VCTs typically invest in fragile, small businesses that not only require capital but also potentially a lot of advice and support, in exchange for which they grant the tax relief.

However, the returns we seek to quote are net investment returns after all costs.

Simoney Kyriakou is senior editor at FTAdviser