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‘Crackdown is forcing VCTs to cut quality’

VCT expert Martin Churchill claims a Revenue crackdown on investment deadlines may force managers to pay over the odds for lower-quality investments.

HMRC has written to VCT managers saying it will no longer tolerate trusts failing to invest at least 70 per cent of their capital within three years.

Churchill says 11 firms have avoided meeting the 70 per cent requirement in the past by holding money in non-interest-bearing deposits.

HMRC says it has seen an increase in VCTs applying for consideration of “inadvertent” breaches of the legislation but warns that such breaches will no longer be tolerated. It says any trust violating the rules in this way will lose its VCT status and tax breaks.

VCTs can invest up to a maximum of 1m a year in any qualifying company valued at less than 15m.

Churchill says HMRC’s more vigorous enforcement of the investment rules means that competition will become more intense, forcing managers to buy into weaker companies.

He says: “VCTs are going to have to increase their investment teams to do this. The competition is going to increase, meaning either VCTs will pay more to invest or the quality of their investments will go down.”

Chelsea Financial Services bond manager Matthew Woodbridge says: “All the Aim VCTs launched last year are well on track to be 70 per cent invested and most are aiming at 80 per cent now. But if there is any risk, it will be to the unquoted generalist VCTs investing in unquoted companies.”

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