Income tax efficient investments

The Government has significantly enhanced VCT tax incentives. However, the new rules may only last until April 2006, which gives potential investors a limited time to take advantage of them. The Government has raised the income tax relief from 20% to 30%, irrespective of an investor's tax bracket. It has also increased from £100,000 to £200,000 the maximum sum that investors can invest each tax year. Although the Government has removed the CGT tax deferral mechanism, generous ongoing tax reliefs on dividends and gains remain. Because of these changes, VCTs are now one of the most tax efficient vehicles available to UK investors.

Private Equity - an alternative to mainstream equities

VCTs offer investors access to Private Equity investments. These historically have a low correlation with mainstream markets, which helps experienced investors diversify their risk. VCTs offer the added benefit of upfront and ongoing tax reliefs that help to protect the downside risk and enhance potential returns.

 Who might invest in a VCT?

• Investors with high levels of taxable income
• Investors looking to diversify their investment portfolios
• Investors looking for the potential of tax free income over the long term
• Investors with pensions who want to maximise the tax efficiency of their investments
• ISA investors who are looking for other tax efficient investment opportunities

Risks

The overall performance of the VCTs listed on the London Stock Exchange is mixed. You should take professional advice before investing in VCTs in order to select one that matches your risk attitude.