The money raised from this offer will initially go into a portfolio of fixed-interest securities and a UK smaller companies unit trust that Close Brothers will launch in 2006. It will them go into a portfolio of stocks listed on Aim and Ofex.
It has two share classes. A shares which have a £5,000 minimum investment level, are aimed at the conventional VCT investors who wants to take advantage of the temporary enhancement to income tax relief at 40 per cent. B shares, which have a higher minimum investment level of £50,000 are aimed at investors who are also looking for a shelter from IHT.
After three years B shares can be converted to A shares or a distribution in specie will be made. This means the underlying shares will be allocated to B shareholders, who can decide to manage the portfolio themselves or pay a 1 per cent fee for Close Investment. Once the stocks are allocated to B shareholders, they will qualify for business property relief after two years.
Business property relief is available to unquoted shares of a trading or holding company, which means Aim and Ofex stocks are eligible. After the shares have been directly held for two years, they will remain outside the investors’ estate for IHT purposes.
This product offers something new and valuable to IFAs but the IHT feature is not without its risks. For B shareholders, one risk is that once they hold the underlying shares directly, some of them may stop qualifying for business property relief. If this happened they would need to be sold and any replacement would need to be held for another two years.
For A shareholders, the main concern is that the portfolio will be smaller after the distribution in specie takes place so the costs will have a greater impact on the shares remaining in the VCT.