Financial advice - Venture Capital Trusts (VCTs)

Venture capital trusts (VCTs) offer one of the best tax breaks available - if you can stand the risks involved.

VCTs are funds that invest their cash in small, unquoted firms at an early stage in their development or in shares listed on the Alternative Investment Market (known as Aim) and Ofex.

VCTs are generally considered to be high-risk investments, however, the reward is that they offer investors income tax relief of 30% on investments to new shares of up to £200,000.

In other words if you invested the maximum £200,000, you would receive a tax rebate of £60,000. But you have to hang onto the shares for at least five years otherwise you will lose the 30% tax break.

VCTs come in four different guises. There are generalist VCTs which invest in firms in a variety of sectors and also target management buyouts. Aim-based VCTs concentrate solely on the Aim market. Specialist VCTs will focus on firms in a particular sector, such as technology.  Finally are limited life funds, which have a finite existence and last for say five years.