Part 1 : An Investment Series by Jon Levinson

Is there a Tax Payer not seeking to pay less tax ? Is there an Investor not looking for a 10 bagger?…..

Even if there are such people this could be a chance to reconsider and why we are initiating an Investment Series on EIS (Enterprise Invest Scheme) and VCT (Venture Capital Trust).

As the series progress you will become more familiar with the terms. There have been a lot of rule changes for both schemes over the last three years, all with a similar theme of pushing the qualifying investments towards smaller, higher risk businesses.
Here we start with a brief background to VCT and a recommendation.

VCTs are fully listed funds with attractive Tax incentives to invest and you get to follow the price on the screen. Investing in a VCT new issue, is a straight forward and low hazzle, which gives income tax relief of 30% on up to £200,000.

This is given as a tax credit against total income tax liability, though the shares need to be held for at least five years to keep the relief. Any dividends from the VCTs are paid out tax free and no capital gains tax is paid on disposal.

In the last Tax year to April 2018, the VCTs market raised £745m, since then to January 2019, the amount raised was 23% lower on the compatible period.

As the increased risk of the qualifying investments, coupled with Brexit uncertainty may be putting investors off. In this background Companies seeking investment will accept lower valuations.

Just as Fund managers are being pushed to look for growth in companies perhaps at the expense of a dividend therefore fund managers and investors should get better bang per buck invested.

We think Calculas VCT is worthwhile. It is a relatively small fund raising £15m with no Initial fee. The strong established and prize winning Venture Capital team have delivered well in the past.

The Fund aims to generate sufficient returns to maximise tax-free dividends while growing the capital over the medium to long term. The current fund raising is for Ordinary shares, which will have an income target of 4.5% of NAV.

Returns will be generated by investing in a portfolio of mainly unquoted companies across different industries. Since being founded an average realised 9% IRR is still credible but with the current wind behind them could do better.

VCTs are at the lowest risk end of this investment spectrum while investing in a single EIS qualifying company is at the highest end. To be continued ……