Financial Services > Investments > Venture Capital Trusts


A Venture Capital Trust is a relatively illiquid investment - meaning that buying them is easy and selling them is a lot harder.


An independent trustee is appointed and all investments are registered in the name of that trustee by the fund manager to provide security for investors.

Up to 30% of the fund can be invested in extremely risky business or cash deposit, but at least 70% of the money must be invested into UK businesses that are either in private ownership or listed on the Alternative Investment Market - provided that no business has a market value of more than 7,000,000 when the investment begins.

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This type of scheme was introduced to provide a flow of money to small businesses in the UK to help them grow more quickly and to prevent those businesses from having to borrow larger sums from banks.

To compensate for the additional risks involved you get a credit note representing 30% of your investment to set against the Income Tax that you have paid (subject to a limit of 60,000 per person per tax year) , and any money that comes out of the Venture Capital Trust is completely free of Income Tax and Capital Gains Tax - provided that you hold the investment for at least 5 years.

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The managers of these investments often market them on the strength of the tax benefits available to you. This is the worst possible reason for making any investment.

You should only invest money because the investment story itself is attractive.

Once that objective has been met, then the tax consideration can be addressed. It is quite common to find that the charges involved in a Venture Capital Trust are much higher than they are with other collective investment schemes and the main reason for this appears to be that it has become market practice to charge such high fees rather than any reflection of the additional work involved. In other words, they impose high charges because they can get away with it due to the tax advantages.

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You should only invest money into a Venture Capital Trust that you can genuinely afford to lose, because there is no certainty that you will be able to sell the investment at any time nor indeed that the fund manager will wind the trust up and distribute the proceeds at any given date.