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Revenue paves way to merger of small VCTs

New Inland Revenue legislation could open the door to the merger of venture capital trusts.

VCT experts are predicting that smaller trusts held in boutiques could be merged as firms look to cut the cost of running small trusts.

It is the latest development in the VCT market following Chancellor Gordon Brown&#39s changes to the taxation of the schemes in March.

Under the old rules, inv-estors in VCTs got 20 per cent income tax relief and capital gains reinvestment relief, which meant they could remove £20,000 from their tax bill if they invested the maximum £100,000 in a VCT and held it for three years.

The changes outlined in the Budget see the annual upper investment limit inc-reased to £200,000, with inc-ome tax relief increased for two years from 20 per cent to 40 per cent, with the difference being paid to a VCT.

Previously, the closure of a fund to merge or become part of another fund would have left investors out of pocket as they paid front-end income tax and capital gains tax.

Hargreaves Lansdown inv-estment manager Ben Yearsley says he thinks investors should not be worried about venture capital trusts being merged.

He says: “The next few months will prove an interesting time as we see what firms make of these rules. The VCT market has been through a number of changes already this year.

“I do not think that this will prove a big problem for inv-estors. It just needs to be made clear to investors that the value of whatever units they held or will now be held in a different trust will be the same value.”

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