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Julian Gibbs

The VCT season has started early this year and is now in full swing.

Nearly all VCTs are a much safer investment than investing in individual shares and, if the tax breaks are taken into account, are also one of the best investments available today. This is for three main reasons.

First, investments do not have to be made into qualifying smaller company investments for the first three years.

This gives the manager time to choose carefully companies with prospects. In the meantime they can invest in gilts or in other equities effectively at a huge discount in the guise of tax reliefs.

Secondly, smaller companies have fallen much more heavily recently than the market as a whole, especially Aim-listed companies, and are now excellent value.

Thirdly, they are an ideal long-term investment for those higher rate taxpayers who have invested the maximum they can into their pension schemes and into Isas because VCT dividends are tax-free and the real value of them is likely to work through well after five years.

For example, Venture and Development Capital Investment Trusts have outperformed UK Growth over 10 years by a huge amount. Of the VCTs open now, the ones that I like best are Northern 3 VCT and Unicorn AIM VCT, both of which have excellent smaller companies records.

An interesting newcomer is Electra Kingsway VCT, which has an excellent long-term record of investing in unquoted companies, while Aberdeen Growth Opportunities VCT has a top class new manager, who had an outstanding record at the Clydesdale Bank.

Investors should divide their money between several trusts so as to give a spread of risk.


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