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VCTs oversupplied as demand slumps

VCT supply is expected to be more than double the demand this tax year.

The 23 venture capital trusts launched this year have capacity for £430m but industry experts are only predicting inflows of £200m following the Chancellor’s tax relief changes.

Total VCT subscriptions for the 2006/07 tax year have only reached £41.47m so far compared with over £180m at the same point last year.

The last two years saw record inflows into VCTs of £750m in 2005/06 and £507m in 2004/5.

Chancellor Gordon Brown cut the tax relief from 40 per cent to 30 per cent and lengthened the qualifying period for the relief although he did also slash the minimum market cap of stocks held that can be held by VCTs from £15m to £7m.

BestInvest head of communications Justin Modray considers that many VCTs are unlikely to get off the ground.

He says: “A handful will end up aborting their offerings, leaving investors in limbo. This was probably not the best year for new VCT launches in the market.”

Hargreaves Lansdown investment manager Ben Yearsley says: “Many firms are proven in the VCT market but you would question some of those who are looking to raise some £50m when in reality they would be lucky to get £15m.

“Everyone has to be more wary this year as the changes make the VCT market a relative unknown.”

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