The Guinness VCT has launched an offer for up to £15 million (£10 million + £5 million overallotment). The new VCT first issued shares in July this year, and has so far invested into five companies.
The VCT ultimately targets an annual dividend of 5% of net asset value – although no dividends are likely before 2026 at the earliest.
Nicholas Hyett, Investment Manager at Wealth Club commented:
“Guinness is one of the newest and smallest VCTs in the market, having issued its first shares just months ago.
However, the manager has a long track record as one of the UK’s leading EIS fund managers, and has invested over £280 million into young companies in the UK. That should give the trust access to a volume and quality of deal flow that far outweighs its size.
Early investments look promising, with a nice spread across data, AI driven analytics, consumer and B2B software.”
Why VCTs are worth investing in
Most investors are initially attracted to VCTS for the tax breaks, and they are generous. Investors can get up to 30% back in income tax relief up front, any dividends paid by the VCT are tax free and growth is free of capital gains tax too.
However, VCTs are more than just a tax planning tool. They are probably the best way for UK investors to access fast growing smaller companies. Revenue growth from VCT investees far outstrips what you see in main market listed companies, and the result has been some attractive returns for investors over the longer term.
Exposure to high growth, smaller companies also has the potential to diversify a conventional portfolio. Long-term performance is often only loosely correlated with the wider economy. Highly disruptive businesses tend to be able to grow through the economic cycle, since they are taking market share from incumbents rather than relying on market growth.
The rules governing VCTs mean they’re also an excellent way to back UK smaller businesses. It’s their role providing support to the next generation of UK start-ups, driving innovation and creating jobs, that earns them the tax relief from the government – and many investors feel that this is something they wish to support too.
Who should consider them?
VCTs are higher risk, and while they’re listed on the stock market, in order to qualify for tax relief investors must hold the shares of at least five years before selling – making them inherently long-term investments. Unlike most conventional funds and shares the minimum among you can invest is comparatively high – often £3,000 or more. All of this means they are best suited to wealthier or more sophisticated investors.
VCTs are popular with two groups in particular.
The first is higher earners or wealthier investors who are limited in what they can put into more mainstream tax wrappers. Those who already use full £20,000 ISA allowance or whose pension contributions are tapered due to the amount they earn. The £200,000 a year annual VCT allowance is generous and can save higher earners up to £60,000 in upfront income tax.
The second group are those in, or near, retirement who use VCTs’ tax free dividends to supplement income from other sources. Because they’re higher risk, VCTs shouldn’t be considered a replacement for a pension, but they can help to top-up income from more conventional sources.