Venture Capital Trusts

Interest in Venture Capital Trusts ('VCTs') has been subdued for the past couple of years. Investors have fretted about the global economy and managers have preferred to sit on cash, the return on which has usually been lower than their costs.

However, restrictions on pension contributions are prompting increased interest in VCTs by higher earners, and experts are predicting that as much as £450m could be in vested in the current tax year.

VCTs over 30% income tax relief on contributions up to £200,000 plus tax-free dividends and capital gains. However, the Government is reviewing tax reliefs generally, and there are indications that the benefits both of VCTs and their cousins, Enterprise Investment Schemes ('EIS'), could be curtailed. This is providing a further stimulus to VCT investment, and investors are being encouraged to buy while stocks last.

The tax breaks reflect the Government's wish to support the fledgling businesses in which VCTs invest, and which are necessarily riskier than investments in established companies. However, the current rules allow investment in lower-risk sectors such as solar energy, and it is here that the axe could fall - though this would almost certainly not affect existing investments.