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PRIVATE EQUITY
 

Investment Opportunities

Are you missing a valuable opportunity?

Most of the attention on VCTs in recent years has been on new share issues, which attract significant levels of initial tax relief, but has ignored some very powerful tax benefits available for investments of up to £200,000 per annum into existing VCT shares.

Existing shares don't offer the up-front tax relief, but do offer very significant tax benefits. Many investors aren't aware of this however, and could be missing a valuable opportunity. The following summarises the key advantages of buying VCT shares in the secondary market:

  • The yield is tax-free - for example a yield of 10.3% from Aberdeen Growth Opportunities VCT Ordinary Shares (based on the share price at 28 September 2007 and dividends paid or declared in the 12 months to September 2007 of 7.5p) is equivalent to a higher rate taxpayer receiving 13.7% from a taxable UK equity.
  • No capital gains tax is payable on sale of shares.
  • There is no tax-related minimum holding period for shares bought in the secondary market.
  • For these reasons, VCTs can be very attractive to higher rate tax-payers.
  • Share prices tend to be at discounts to Net Asset Value (NAV). Discounts reflect the lower liquidity in the VCT market and the fact that existing shares do not benefit from the initial tax relief that is available on new shares. There have been few sellers to date due to the minimum holding period required to qualify for initial tax relief, and private client brokers and IFAs have been slow to realise the value of VCTs as yield stocks.
  • Discounts should narrow over the longer term as investors recognise the excellent yield story and consistency of returns, based on a track record of paying stable or increasing dividends and increasing NAV total returns.
  • More generous pre-2007 Budget investment rules apply, so existing VCT portfolios tend to include larger companies with lower risk profiles.

Click here to learn more about the benefits of purchasing existing shares