What type of clients are VCTs suitable for? Firstly, VCTs should be considered on their investment merits rather than simply a way of accessing tax reliefs. Given their focus on smaller, less liquid companies, VCTs will not be suitable for every client.
However it is also worth noting, that given the VCT industry has been running for over 20 years it is possible to find VCTs with large and mature portfolios, many of these have started to develop the hallmarks and traits of a smaller companies investment trust, and if investors can get access to a top-up offer within one of these portfolios it can help to potentially lower the investment risk.
Given the changes to pension legislation in the last couple of years there seems to an ever increasing demand from investors for VCTs who have capped out on either the lifetime limit or their annual contributions.
With their upfront income tax relief at 30 per cent and tax-free dividends you can see the attraction for people using them as a supplementary pension planning option, building a diversified portfolio of different VCTs over time, to sit alongside their pension.
As Chris Hutchinson, manager of the £150m Unicorn Aim VCT says: “VCTs are sometimes mistakenly considered as being solely focused on achieving returns through capital growth, but in reality many VCTs deliver attractive returns via regular tax-free dividend payments.”
