Type: Venture capital trust
Aim: Growth and income by investing in unquoted UK companies considered to have high levels of capital security
Minimum investment: Lump sum £3,000
Closing date: April 5, 2010 for 09/10 tax year, April 30, 2010 for 10/11 tax year
Charges: Initial 5.5%, annual 2% rolled up and payable after five years if shareholders have received a return of 105p for each share, performance fee 20% payable on returns above 105p for each share
Commission: Initial 2.5%, renewal 0.5%
Tel: 0800 316 2349
The Octopus Investments secure venture capital trust aims for a high level of capital security by investing in unquoted UK companies that have contracts in place from financially sound customers or operate in sectors where the revenue generated is predictable.
Putting the VCT into its market context, AWD Chase De Vere senior manager Jason Walker says: “It is clear that any future government will be committed to the new 50 per cent tax band. With this focus on tax revenue, any tax mitigation plans will become more important for our clients.”
He feels that VCTs offer a great way to reduce income tax bills while retaining control, after the shares have been held for five years.
“Traditionally a higher risk investment, VCTs have not been for the faint hearted yet Octopus has again provided a lower-risk investment for investors that want to use VCTs as a tax planning vehicle rather than a speculative investment.”
Walker points out that this VCT uses a similar investment strategy to the Octopus protected enterprise investment scheme. “By placing the emphasis on capital preservation, it becomes more suited for clients whose main aim is tax mitigation. Importantly for a VCT, there is a clear exit strategy after five years, so investors have reassurance that capital and growth will be returned at this point. “
Walker says he has no issues with the charges because the focus is the return of 105p at maturity. “Octopus will not take any fees unless this return is achieved and with 30 per cent income tax relief, this works out as an annualised tax free return of 7.85 per cent a year,” he says.
Walker regards the adviser remuneration as fair. “The service and support from Octopus is well above the industry average,” he says.
Turning to the less appealing aspects of the VCT, Walker says: “This is not suitable for traditional VCT investors seeking high returns from their investments. Investors also need to be aware that it is a five- year investment. If they are looking at shorter timescales, they should consider an EIS. “
Scanning the market for potential competitors, Walker says: “There are no direct competitors but there are many traditional VCTs in the marketplace for those looking for a more speculative investment. “
He observes that Downing has a protected VCT but this has a different investment strategy compared with the Octopus VCT, focusing instead on property.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good