Most investors think about putting money into venture capital trusts (VCTs) at the end of the tax year as part of their tax planning strategy, as the attractions of these funds include 30 per cent income tax relief if held for five years, as well as tax free dividends.
But these funds are increasingly bringing forward their issuance to earlier in the tax year, to give them more time to market the funds, while some managers aim to have funds open all year. While for many this has meant moving issuance from January or February to November or December, some are starting to issue even earlier.
The Northern VCTs are expected to publish their intention to launch a share issue on 31 May while other existing VCTs should also bring out issues in the summer months. Social Impact VCT, meanwhile, a new launch last year did not raise as much as it wished so did not issue shares but continues to fund raise. There are a number of other VCTs launched in the 2012/2013 tax year still open for investors to put their money into as follows.
Open VCTs
| VCT | Amount raised so far (%) | Close date |
| Albion Crown Place VCT Top Up Offer (2012/13) | 72 | 12/06/2013 |
| Albion Development VCT Top Up Offer (2012/13) | 80 | 12/06/2013 |
| Albion Enterprise VCT Top Up Offer (2012/13) | 68 | 12/06/2013 |
| Albion Income & Growth VCT Top Up Offer (2012/13) | 68 | 12/06/2013 |
| Albion Tech & Gen VCT Top Up Offer (2012/13) | 80 | 12/06/2013 |
| Foresight 2 VCT £1.5m ord share offer (2012/13) | 68 | 28/06/2013 |
| Foresight 3 VCT £4m ord share offer (2012/13) | 28 | 28/06/2013 |
| Foresight 4 VCT £1.3m ord share offer (2012/13) | 87 | 28/06/2013 |
| Octopus Apollo VCT ord shares (2012/13 £20m offer) | 67 | 30/06/2013 |
| Pembroke VCT | 55 | 31/07/2013 |
| Amati VCT/Amati VCT 2 | 8/6 | 23/01/2014 |
| Hargreave Hale VCT and VCT 2 (2012/13 £10m further issue) | 23 | 31/10/2013 |
| Unicorn AIM VCT | 22 | 31/07/2013 |
| Octopus AIM and Octopus Second AIM VCT | NA | 31/01/2014 |
| Downing Planned Exit VCT 2 G shares (2012/13) | 85 | 28/06/2013 |
| Foresight Solar VCT C share (2012/13) | 28 | 31/12/2013 |
| Ingenious Entertainment VCT 1 & 2 H shares offer (2012/13) | 22 | 31/08/2013 |
| Social Impact | NA | November 2013 |
Source: Tax Efficient Review
There are some arguments for investing sooner rather than later. Over the years the Baronsmead and Northern VCTs have been among the best performing generalists and have strong dividend streams. However, due to their success they usually sell out fast, as was the case again earlier this year. "I want clients to be aware that if they wait to the end of the tax year they may not have the greatest choice because some VCTs may have sold out," says Matthew Woodbridge, vice president at Barclays Wealth & Investment Management. "If you know what your salary will be you do not have to wait till the end of the tax year to invest in a VCT: you can get your PAYE code adjusted."
You sometimes get early bird special offers when VCTs launch a raising so early investors may be able to save on the charges. "But if you do go in early make sure the VCT allots you your shares in time as you need share certificates and tax certificates to benefit from tax relief," says Ben Yearsley, head of investment research at Charles Stanley Direct. "The sooner you get the tax certificates, the sooner you can claim the tax relief. You should also check when the ex dividend dates are and make sure your shares are allotted before that."
Some VCTs pay dividends throughout the year, in particular established ones, while with new launches you might have to wait years for the first dividends. "With offers that are still open it is worth looking out for announcements that might lead to early dividends," adds David Scrivens, director at discount broker Clubfinance.
However, there is still not that much choice over the summer, so if you have a limited amount to invest you may want to wait to see what comes later, and compare and contrast offerings, though this is less important for established strongly performing VCTs that already pay dividends. Some established dividend payers such as the Baronmead VCTs will not launch until January or February if they decide to do an issue, while VCTs such as Albion and Maven will look to issue in October or November, as they typically do.
If your income is not predictable and you do not know your tax position then you need to wait till the end of the tax year to clarify this. "It is natural that many higher earning investors only tend to focus on tax issues in the run up to the end of the year when they have a clear idea of their overall potential tax liability and also, for city workers in particular, once bonuses have been paid," says Jason Hollands, managing director at Bestinvest.
Secondary market
VCT are listed on the stock market so there is a secondary market for their shares. But it’s illiquid, partly because VCT shares bought on the secondary market do not qualify for the 30 per cent income tax relief available with a new issue. It can also be hard to get hold of shares, especially in the more popular VCTs.
However, you still get tax-free dividends and the lack of income-tax relief means you will almost certainly be able to buy the VCT shares at a discount to net asset value (NAV), in some cases very wide ones. However listed funds maybe trading at a discount for a reason such as poor performance, or an expectation that dividends going forward may not be so generous, so do your research before you buy.
With only a couple of market makers, the spreads can also be quite wide. "So if you’re buying, it's worth putting a limit order at a set discount to NAV you're willing to pay," suggests Rupert Dearden, of the equity sales desk at market maker Singer Capital Markets. "That way, when the market makers have sellers at that level, you can buy the shares at a price you're happy with."
VCTs can be bought and sold through a stockbroker or via share dealing platforms. Stock brokers particularly active in this area of the market are Singers Capital Markets, Panmure Gordon and Winterflood.
