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Downing VCT explores IHT options

Downing Corporate Finance has established the Pennine Aim VCT 6, a venture capital trust that has an inheritance tax option after three years.

The VCT, which is managed by Rathbones, will initially invest the proceeds of this share offer in fixed interest and cash deposits. Over the next three years the money will be switched to qualifying unquoted companies, mainly those listed on Aim.

However, up to 30 per cent will remain in fixed interest and cash deposits and a small percentage may go into non-qualifying Aim companies that Rathbones believes are undervalued.

Rathbones prefers to invest in unquoted companies already listed on Aim rather than new flotations because it is more likely to have a detailed knowledge of the stocks, so any investment should carry less risks than a new flotation to Aim.

Characteristics that Rathbones looks for when selecting unquoted companies include good growth opportunities, experienced management teams and healthy balance sheets.

After three years the board intends to provide investors with two options a VCT option where investors will receive a tax-free cash return of 30p for every 1 invested and regular tax-free dividends, and the inheritance tax relief option where investors receive a direct holding in the underlying investments and benefit from 40 per cent IHT relief on this after another two years.

Ordinarily, VCT shares are listed so they are subject to IHT if the investor dies while holding them. But where the IHT option is chosen, a special class of i shares will be created, allowing shares in the unquoted companies to be allocated directly to investors. Investors can then decide to manage the portfolio themselves or allow Rathbones to manage them within its IHT service.

This VCT is similar to the Close IHT Aim VCT but they are structured differently. Investors in the Close VCT must choose between VCT and IHT options at the outset, with the IHT option requiring a higher minimum investment of 50,000 compared with the 5,000 minimum for the VCT option. The Pennine Aim VCT has the same minimum investment for all investors at the outset but restricts eligibility for the IHT option after three years to investors who hold at least 30,000 shares.


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