The investments where the returns don’t matter (thanks to a 30pc bonus)

Every year, investors get the chance to secure valuable tax reliefs by investing in small British businesses.

If you have used up both your pension annual allowance and Isa allowance in the same year, then the next thing financial advisers will usually recommend is putting some cash into venture capital trusts, or VCTs.

While most people can put £60,000 a year into a pension, those with very high incomes (£360,000 and above) can only put in £10,000. So there are more people than you think who need somewhere to park their money.

VCTs offer incredibly generous tax breaks – including tax-free dividends, capital gains tax relief, and 30pc income tax relief. The reason for the generosity of reliefs is that in return you are putting your money into high-risk, small but hopefully fast-growing British businesses.

You can invest as much as £200,000 a year and receive up to £60,000 of income tax relief. You must have paid or owe as much tax during the year in which you invested to benefit.

Crucially, you only qualify for the relief if you buy shares during a new share issue or when the VCT lists in the first place and you must hold the investment for at least five years.

While experts say you should never invest solely for tax breaks, the generosity of the relief offered by VCTs means it may still be worth investing even if returns are poor.

Alex Davies, of the Wealth Club, a high net worth broker, said the companies VCT invest in have the potential to achieve growth levels “far in excess of companies on the listed market”.

Some companies backed by VCTs have gone on to become household names, such as hotel booker Secret Escapes, clothes marketplace Depop and Zoopla, the property portal.

However, the best funds look to raise only a few million pounds each year and quickly sell out.

With VCT fundraising season in full swing, Telegraph Money explains which VCTs are open for investment and how much they are looking to raise.

How do you choose a VCT?

These are the factors to consider when deciding which VCT to invest in:

• Past performance. You should look at their five-year “NAV” total return. This is the VCT’s net asset value – the value of assets less debts – combined with any dividends over the period.
• Their exposure to individual companies. Larger VCTs are likely to be safer as they will be more diversified and exposed to more companies. You should also look at the percentage of the NAV that their top five or ten holdings make up.
• The fund manager. As with any fund, you should aim to choose a manager who is established in their field and has a positive track record of selecting investments over time.
• Fees. VCTs typically charge 2pc a year but some may charge more than this. Investment charges are a drag on returns.

What type of VCT should you pick?

There are three broad categories of VCT: generalist, Aim and specialist.

Generalist VCTs are the most common, investing in a range of companies across different sectors.

Specialist VCTs focus on one specific sector, such as technology, which means they may carry more risk than their generalist counterparts.

Aim VCTs invest predominantly in companies listed on the Alternative Investment Market, London’s junior stock market, focused on small and medium-sized companies.

Note that Aim VCTs do not qualify for inheritance tax relief, even though their underlying shares might.

Alan Sheehan of research firm MICAP, which tracks VCT performance, said Aim VCTs have had poor performance of late as the Aim market has contracted.

“The FTSE Aim 100 has fallen by about 50pc since its high in March 2021 and is now at the levels it fell to in March 2020 – after the sell-off as the coronavirus pandemic took hold,” he said.

“Arguably there is a good value in the Aim VCTs today, although with AIM flotations at historic lows they may struggle to deploy their funds as easily as they did last year.”

Best-performing VCTs

These are the best-performing VCTs of the last five years, according to MICAP.

Remember that past performance is no guarantee of high returns in the future. Note that initial charges differ depending on whether you buy directly, or through a regulated financial adviser.

Discounts on fees are also available through platforms such as the Wealth Club in some cases.

Mobeus VCTs

• Closed

The British Smaller Companies VCTs

• AUM: £334.5m
• Sector: Generalist
• Number of VCTs: Two
• Portfolio: 41 companies
• Five-year returns: 68pc (BSC) and 61pc (BSC2)
• Seeking to raise: £65m (£25m overallotment facility – this means the managers might try and raise an additional amount if they meet their initial fundraising target)
• Amount raised: £30m
• Minimum investment: £6,000
• Initial charge: 5pc
• Annual management charge: 2pc

Albion VCTs

• Yet to open

Foresight Enterprise VCT

• AUM: £148.2m
• Sector: Generalist
• Portfolio: 40 companies
• Five-year returns: 32.3pc
• Seeking to raise: £20m (£10m overallotment facility)
• Amount raised: £700,000
• Minimum investment: £3,000
• Initial charge: 5.5pc
• Annual management charge: 2pc

Octopus Apollo VCT 

• Yet to open

Source: MICAP

Other VCTs

The list below includes well-known funds that are not necessarily top performers but excludes those launched fewer than five years ago. 

Maven VCTs

• AUM: £274.4m
• Number of VCTs: Four
• Sector: Generalist
• Portfolio: Over 100 each
• Five-year returns: 8.9pc to 13.1pc
• Seeking to raise: £20m (£10m overallotment facility)
• Amount raised: £1m
• Minimum investment: £5,000 (£1,000 per VCT)
• Initial charge: 5.5pc
• Annual management charge: 1.75-2.5pc

Molten Ventures VCT 

• AUM: £123.9m
• Sector: Generalist
• Portfolio: 35 companies
• Five-year Returns: 13.3pc
• Seeking to raise: £20m (£20m overallotment facility)
• Amount raised: £850,000
• Minimum investment: £6,000
• Initial charge: 5.5pc
• Annual management charge: 2pc

Octopus AIM VCTs 

• AUM: £210m
• Number of VCTs: Two
• Sector: AIM
• Portfolio: 90 companies
• Five-year returns: 12.2pc and 15.5pc
• Seeking to raise: £20m (£10m overallotment facility)
• Amount raised: £18m
• Minimum investment: £5,000
• Initial charge: 5.5pc
• Annual management charge: 2pc

Octopus Titan VCT

• AUM: £1.1bn
• Sector: AIM
• Portfolio: 140 companies
• Five-year returns: -3pc
• Seeking to raise: £125m (£75m overallotment facility)
• Amount raised: £1.2m
• Minimum investment: £3,000
• Initial charge: 5.5pc
• Annual management charge: up to 2.5pc

Pembroke VCT 

• AUM: £216m
• Sector: Generalist
• Portfolio: 50 companies
• Five-year returns: 22.7pc
• Seeking to raise: £40m (£20m overallotment facility)
• Amount raised: £8.8m
• Minimum investment: £5,000
• Initial charge: 5pc
• Annual management charge: up 2pc

Hargreave Hale AIM VCT

• AUM: £161.9m
• Sector: AIM
• Five-year returns: -27pc
• Seeking to raise: £20m (£20m overallotment facility)
• Amount raised: £4.6m
• Minimum investment: £5,000
• Initial charge: 3.5pc
• Annual management charge: 1.7pc

The Northern VCTs

• AUM: £343m
• Number of VCTs: Three
• Sector: Generalist
• Five-year returns: 26pc to 27pc
• Seeking to raise: £42m (£18m overallotment facility)
• Amount raised: £14.1m
• Minimum investment: £6,000 (£2,000 per VCT)
• Initial charge: 5pc
• Annual management charge: 2.06pc

Seneca Growth Capital VCT 

• AUM: £14.1m
• Sector: Generalist
• Five-year Returns: -20pc
• Seeking to raise: £10m (£10m overallotment facility)
• Amount raised: £300,000
• Minimum investment: £3,000
• Initial charge: 5.5pc
• Annual management charge: 2pc

Calculus VCT

• AUM: £34.3m
• Sector: Generalist
• Portfolio: 38 companies
• Seeking to raise: £10m (up to £10m including over-allotment)
• Amount raised: £675,000
• Minimum investment: £5,000
• Five-year returns: -0.83pc
• Initial charge: 5pc
• Annual management charge: 1.75pc

Source: Wealth Club