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No Tax Relief for VCTs

Managers of Venture Capital Trusts (VCTs) were disappointed that the Pre-Budget Report failed to spell out future plans for the tax reliefs the trusts currently enjoy.

At present, investors in new VCT shares receive 40 per cent income tax relief. However, this two year temporary measure is due to come to an end this coming April. Many managers of VCTs, which must invest in unquoted or AIM companies raising capital, were expecting the Chancellor to announce plans for the following tax year in the report.

However, the only mention of VCTs stated that ‘The Government remains committed to ensuring the long-term sustainability and success of the VCT market, and will announce the future level of VCT reliefs at Budget 2006.’

ISIS Equity Partners, which manages over £150 million of VCT money across the four Baronsmead trusts, was disappointed Lead manager David Thorp said: ‘The private equity job market is highly competitive and it is important for management groups to have a sense of what the future VCT market will look like, lest they need to further expand their teams. They won’t know this for sure until the 2006 Budget, which will be just weeks before the end of the financial year.’

He added that: ‘Given the uncertainty over how long the current 40 per cent income tax incentives are in place, we expect demand to remain strong for VCTs currently raising funds.’

AIM investors were reassured that there was no mention of changing the rules surrounding the tax reliefs that they currently enjoy. Prior to the Report, some suggested Gordon Brown might curtail these breaks for larger AIM companies worth more than £100 million, following the recent flurry of sizeable AIM flotations.

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