A Venture Capital Trust (VCT) is an investment company, broadly similar to an investment trust, which has been approved by HMRC. Investors subscribe for shares in the VCT and this money, after fees have been deducted, is pooled and used by the investment manager of the VCT to invest in or lend money to small unquoted companies, including companies that are listed on AIM or AQSE Growth Market. There are complex rules with which a VCT must comply that are designed to channel investments into small companies with certain characteristics, known as qualifying companies. For example, in most cases they must have less than 250 employees and gross assets of less than £15 million. Most of the companies are registered in the UK.
By virtue of the size of the qualifying companies, investments in them (known as qualifying investments) carry greater risk than those made in larger companies, although they also have the potential to deliver significant capital growth over the medium to long term. To encourage investment into VCT schemes, the government has put in place a number of incentives in the form of income tax relief, dividend tax relief and capital gains tax relief. The income tax relief is only available on new shares issued by the VCT, whilst the dividend tax relief and the capital gains tax relief is available on new VCT shares and existing VCT shares bought through the London Stock Exchange.
The VCT shares themselves are quoted on the London Stock Exchange Main Market and can therefore be bought and sold at any time, although an investor will lose some or all of their tax reliefs if they sell their shares before the fifth anniversary of their issue. You should carefully review the ‘Risks of investing in VCTs’ section below for more details on this and on the risks of investing in VCTs.
The Alternative Investment Market, otherwise known as AIM, is the London Stock Exchange’s equity market for smaller, growing businesses. It is a deep and diverse market that is home to nearly 850 companies operating across multiple countries and sectors.
Small companies list on AIM to gain access to new capital, provide liquidity for their shareholders and enhance their reputation through their status as a plc. AIM companies have to abide by the rules set out in the AIM rulebook, which is often said to be a lighter touch regime than the listing rules that apply to companies listed on the London Stock Exchange's Main Market. AIM companies are sponsored by a nominated adviser (NOMAD), whose role it is to ensure the AIM rules are correctly applied, and make use of a broker to provide them with corporate and investor access and as a source of published research. In many cases, AIM companies appoint the same company as their broker and NOMAD.
Below is a summary of the tax benefits, which are based on current tax legislation and are subject to change at any time. The tax reliefs are available to investors over the age of 18 who pay UK income tax; they are dependent on the individual circumstances of the investor.
- Income tax relief of 30% of the sum invested, subject to a maximum investment of £200,000 in any tax year. Relief is limited to the amount which reduces the investor’s income tax liability to nil and is only available on shares issued through an offer; it is not available on shares purchased through the London Stock Exchange.
- Tax-free dividends, which may include capital distributions.
- Capital gains tax exemption on the disposal of ordinary shares in a VCT.
Example effect of initial income tax relief
- Cost of investment 100.0p
- Cost of investment net of tax relief 70.0p
- Initial net asset value 96.5p
- Initial uplift (%) 37.9%
Investors who hold their VCT shares for less than five years may have to repay some or all of their 30% initial income relief.
Below is a summary of the key risks associated with investing in Hargreave Hale AIM VCT plc (the "Company" or the "VCT").
- Risks specific to VCTs. VCTs will invest in small, high-risk companies. These qualifying companies may have volatile share prices and the investments may be difficult to realise. They may be overly reliant on a few large customers and have less financial resilience. They may also have weak or negative cash flow and less management resource.
- Legislative risk. Changes in legislation may adversely affect the VCT's status as a VCT and its ability to meet its investment objectives and/or reduce the level of achievable return.
- Risks to the tax reliefs. There can be no guarantee that the VCT will meet its objectives or that suitable investment opportunities will be identified. A failure to maintain the qualifying status could result in the VCT losing the tax reliefs previously obtained, resulting in adverse tax consequences for investors. Investors who sell their VCT shares before the fifth anniversary of the share issue are likely to have to repay their income tax relief. Therefore, an investment in a VCT should be seen as a long-term investment. The tax consequences for an investor of holding shares in the VCT will depend on an investor’s individual circumstances and may be subject to change in the future.
- Risks that relate to VCT shares. VCT shares can be difficult to sell as there can be little demand for VCT shares sold in the secondary market, furthermore the share price is unlikely to reflect the net asset value per share. The value of shares and the income from them can fall as well as rise. Investors may not get back the amount invested and their capital is at risk. The VCT operates a credible share buy-back policy but the directors reserve the right to amend or suspend the application of the buy-back policy. Dividend distributions are subject to performance and other factors and cannot be guaranteed. The past performance of the VCT and its underlying investments is no indicator of future performance.
Investors should therefore note that an investment in a VCT such as the Company carries a high level of risk and such investment will not therefore be suitable for all investors. You should not therefore act upon any information contained on this website without first consulting a financial or other professional adviser. Further information on the investors for whom an investment in the VCT may be suitable is set out in the Key Information Document.
The latest annual report, factsheet and prospectus can be found in the document library. These documents include a more comprehensive list of the risks associated with this product. Please ensure that you have read and considered carefully each of the risks identified in these documents before investing in the VCT.
We are aware that some shareholders have been contacted by an overseas third-party firm. This company is attempting to engage and exploit them by advising they have additional new shares in the Company following a corporate action. They are then offering to buy these shares at an inflated price.
There is a warning on the FCA website about this firm operating in the UK without FCA authorisation. If you deal with this company, you will have no access to the Financial Ombudsman Service or be protected by the Financial Services Compensation Scheme (FSCS).
Please be vigilant and should you receive such a call please contact the administration office in Blackpool on 01253 376622 where we can provide you with further information and assistance.
There are many types of fraud, and they can be difficult to spot. Fraud can happen at any time in numerous ways.
For further information on the types of fraud and how to protect yourself from scams, the FCA has a useful consumer page that can be found by following the below link:
Their page also contains useful links to the Action Fraud, Take 5 and MoneyHelper websites that contain further advice on the basic steps everyone should take to avoid scams.