End of lock-in period expected to lead to increase in supply
Investors are overlooking the tax reliefs available on secondary issues of VCTs as liquidity in the secondary market looks set to rise.
The lock-in period has ended for four VCTs, which is expected to lead to an increase in the supply of secondary shares in the market, according to James Rowlatt, investment manager at Beacon Investment.
Shareholders in the four trusts, Baronsmead, Enterprise, LeggMason VCT and Murray Johnstone VCT, are likely to hold onto their shares, however, the maturity of the trusts is giving hope for added liquidity to the market. Ben Yearsley, investment manager at Hargreaves Lansdown, said initial tax breaks on VCTs are a 20% income tax rebate on the investment as long as the shares are held for at least three years (five years for shares issued before 6 April 2000). There is also deferral of CGT on any gains realised within 12 months either side of the date on which shares are allotted. There is no liability to higher rate tax on dividends and no tax on realised gains or CGT on disposal.
Yearsley said: 'Investors in secondary shares will still be eligible for relief on realised gains or CGT on disposal and there is no liability to higher rate tax on dividends.'
The difficulty in gaining access to these shares has created a hurdle in the efforts to promote these advantages as venture capital trust shares rarely come on to the market, he said.
When they do, they are often snapped up by the VCT managers as part of a share buyback scheme, he said.
Yearsley added that the other benefit to buying secondary issues of VCT shares is that there is no lock-in period.
'When purchasing new share issues the investor must hold the shares for a minimum of three years in order to receive the available tax breaks. However, if the investor is buying secondary issues then there is no restrictive time period for holding the shares. In other words, it is possible to ditch the share whenever you need to.'
Additionally, the investor will be buying into a more mature market and coupled with the fact that the investor can sell at any point means there is the potential for quicker returns on investment, Yearsley said.
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