Robert Budden discovers that VCTs are beginning to extend their role through the year

UK venture capital trusts are continuing their strong run after record sales towards the end of the last tax year.

Normally at this time few VCTs are raising money, but this year four are already looking for investors and a fifth is expected to be launched by the end of the month.

"This is very unusual," says David Royds, chairman of Matrix Securities, a company which distributes VCTs. "Normally by this time all the main VCTs have been sold and no new replacement trusts are launched. I think this shows that VCTs are beginning to fulfil a role all year round, and not just at the end of the tax year."

Royds believes VCTs are becoming increasingly popular because more investors have capital gains from other investments that they wish to shelter from tax. Under the rules for VCTs, it is possible to defer the payment of a capital gains tax bill by investing the proceeds in a VCT. Any CGT liability becomes payable only when the VCT is sold.

To shelter gains in this way you must invest in a VCT within 12 months of incurring the original gain. Because of this, John Harrison, a tax specialist with Paul Young Independent Financial Advisers, suggests that people consider buying a VCT now if they have capital gains they want to shelter from tax.

"If you have gains that are almost a year old that you want to shelter within a VCT there is no point in waiting," he says. "You will probably be much better off doing something now as there will be less choice a few months further down the line. The next round of VCTs is only likely to be launched in September."

ost VCTs should offer a decent spread of risk. Harrison says they typically invest in a minimum of 10 companies. The larger ones will have holdings in at least 20 companies.

There are other tax perks on VCTs. Income received within a VCT is tax-free as are all capital gains. There is also income tax relief of 20 per cent on investments, provided the VCT is held for at least five years.

Of those VCTs currently looking to raise money, Matrix e-Ventures VCT will invest in companies which offer products or services linked to the internet and e-commerce. The fund targets companies at early stages of development. Meanwhile the eTechnology VCT will invest in technology and internet-related companies at the second and third stages of raising finance. Unlike standard VCTs, which tend to gradually invest the monies raised over the first three years, this fund immediately ploughs about 70 per cent of the portfolio in technology funds, making it riskier than normal.

Talisman First is the only VCT to invest heavily in companies listed on Ofex, the unlisted securities market. Northern Venture steers more towards a range of traditional companies.

David Porter of Best Investment says there is an unusually wide choice of VCTs for this time of year. But he urges investors to be cautious, particularly when technology-oriented funds are involved.

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