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Aiming high

In his last Budget, Chancellor Gordon Brown changed the venture capital trust rules by reducing initial income tax relief from 40 to 30 per cent but this is still higher than the original 20 per cent.

He also increased the minimum holding period from three to five years and reduced the maximum gross assets of a company in which a VCT can invest from £15m to £7m.

However, the three Alternative Investment Market VCTs on offer, Baronsmead, Keydata and Pennine, are all still highly attractive.

The one I like best is Keydata because the manager, Giles Hargreaves, has 36 years experience investing in smaller companies and has built up an excellent reputation through the Marlborough special situations unit trust.

Despite the restrictions on the size of companies, around 75 per cent of the shares bought by the first Keydata Aim VCT would have met the new criterion.

The new VCT will initially protect capital by investing in cash and gilts and will gradually invest in smaller qualifying Aim companies as well as a few Ofex and private companies where potential is outstanding.

The manager will also target investments in liquid non-qualifying equities. He prefers companies which have a track record, particularly secondary issues by existing Aim companies which he believes are often priced at attractive discounts to market price.

There are now around 1,600 companies quoted on Aim with a combined market value of around £82bn. Late last year, Aim had a daily turnover in excess of £1m and in November alone £456m was raised in new issues, so there are a lot of good investment opportunities.

As all dividends, including capital gains, are tax-free and there are inheritance tax benefits, all high-net-worth individuals should consider having an investment in Aim VCTs.


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