Investors’ capital is at risk and investors could lose money
The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
A VCT is a long-term investment
Investors should be prepared to hold shares for a minimum of five years. If they decide to sell their shares before then, they will be required to repay to HM Revenue & Customs any upfront income tax relief they’ve claimed.
A VCT should be considered a high-risk investment
VCTs invests in the shares of companies that are not listed on the main market of the London Stock Exchange. Such investments can fall or rise in value much more sharply than shares in larger, more established companies. They can also take longer and be more difficult to sell. If your clients aren’t comfortable with the risks involved with unlisted companies, this investment may not be right for them.
Shares may be difficult to sell
There isn’t an active market for VCT shares in the way there is for shares in big companies like BP and Vodafone. This means that if an investor decides to sell their VCT shares, they may not be able to find a buyer, or they may have to accept a price lower than the net asset value of the investment.
Past performance is no guide to the future
The past performance of an investment is not a reliable indicator of future results. Nor should investors rely on any forecasts made about future returns.
Tax rules can change
Rates of tax, tax benefits and tax allowances do change. In addition, the tax benefits available to investors through this investment depend on an investor’s own personal circumstances. To ensure VCT money continues to support Government policy objectives, HM Treasury can also change the definition of a VCT-qualifying investment in the future. This could impact the nature of new investments a VCT can make over time.
The VCT’s qualifying status could end
If a VCT loses its qualifying status, tax advantages – such as tax-free dividends and exemption from capital gains tax – may be withdrawn from that point. If this happens within five years of an initial investment, investors may be asked to repay any upfront income tax relief that they have already claimed.