Despite significant changes introduced over the past few years to the types of companies in which Venture Capital Trusts (VCTs) can invest, this type of investment remains a highly attractive option for those looking to diversify their portfolios and capitalise on tax-efficient schemes. According to the Association for Investment Companies (AIC) last year VCTs raised £728m – the highest amount for ten years.

The changing backdrop to VCTs, driven by the adoption of EU state aid rules in 2015, the 2017 Budget and Patient Capital Review has meant that VCT managers are now required to invest in early-stage companies that have been trading for less than seven years.While this could provide higher returns to investors, there is also a greater degree of risk that needs to be carefully assessed. Furthermore, in an attempt to bring VCTs back to their original purpose of investing in true entrepreneurship, managers are no longer able to invest funds in significantly asset-backed companies or support management buy-outs.

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