A Venture Capital Trust (otherwise known as a 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 the 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 £15m. 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 VCTs.
- Risks specific to VCTs. The primary focus of VCTs’ portfolios is in investments in AIM-traded and unquoted companies. Investment in such companies, by its nature, may involve a higher degree of risk than investment in companies traded on the main market of the London Stock Exchange. In particular, AIM-traded and unquoted companies are often smaller companies which may have limited product and service lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.
- Legislative and policy risk. Any change of governmental, economic, fiscal, monetary or political policy, in particular any changes to taxation, tax reliefs and changes to the VCT Rules, could materially affect, directly or indirectly, the operation and/or the performance of the VCT (and the portfolio companies in which it invests), the number of qualifying investment opportunities available, the value of and returns from the shares in the VCT and/or the ability of the VCT to achieve or maintain its status as a venture capital trust.
- Risks to the tax reliefs. Whilst it is the intention of the directors that the VCT will be managed so as to continue to qualify as a VCT, there can be no guarantee that the VCT will maintain VCT status. A failure to meet the qualifying requirements could result in the loss of tax reliefs previously obtained, resulting in adverse tax consequences for investors, including a requirement to repay the income tax relief obtained, and could also cause the VCT to lose its exemption from corporation tax on capital gains.
- Shareholders who dispose of their VCT shares within five years of issue will be subject to clawback by HMRC of any income tax reliefs originally claimed on subscription. Therefore, an investment in a VCT will not be suitable for every type of investor and should be considered as a medium to long-term investment with a minimum holding period of five years. 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 realise as there is a limited secondary market for shares in VCTs. Furthermore, it is likely that the price for a VCT share which an investor could achieve on the stock market is significantly less than the net asset value per share. The market value of, and the returns derived from VCT shares may go down as well as up and an investor may not get back the amount invested. The operation of the VCT’s buyback policy is intended to provide a degree of liquidity for investors but if the VCT is unable to maintain its buyback policy, investors may find it difficult to realise their investments. The past performance of the VCT or other funds managed or advised by the investment manager is not a guide to the future performance of the VCT.
Investors should therefore note that an investment in a VCT such as the Hargreave Hale AIM VCT 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 Hargreave Hale AIM VCT 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.
Hargreave Hale AIM VCT plc. Registered Office: Talisman House, Boardmans Way, Blackpool, FY4 5FY. Incorporated in England and Wales. Company number 05206425. Hargreave Hale Limited, acting under its trading name Canaccord Genuity Fund Management, acts as the investment manager of Hargreave Hale AIM VCT plc. Hargreave Hale Limited is authorised and regulated by the Financial Conduct Authority with firm reference number 209741.
Canaccord Genuity Wealth Limited acts as the administrator of Hargreave Hale AIM VCT plc and as the custodian of the assets of Hargreave Hale AIM VCT plc. Canaccord Genuity Wealth Limited is authorised and regulated by the Financial Conduct Authority with firm reference number 194927. This website is operated by Canaccord Genuity Wealth Limited. For further details, click here.