An incentive that's too generous to turn down Unlike pensions, VCTs offer tax-free dividends but buyers need beware that many are risky and illiquid, writes Pamela Atherton

• Published in: Daily telegraph (London, England : 1969)
• Main Author: Atherton, Pamela
• Format: Newspaper Article
• Language: English
• Published: London (UK) Daily Telegraph 29.11.2004
• ISSN: 0307-1235

Gains made within VCTs are free of corporation tax and all dividends can be paid tax free. When you sell your VCT shares, any gain on the sale is free of capital gains tax but any losses on VCT sales cannot be offset against capital gains made elsewhere. Of the Aim-based funds, financial services group Smith & Williamson recommends Aim VCT 2 (Isis), Artemis Aim VCT 2 and Framlington Aim VCT. Of the generalist funds, it recommends Baronsmead VCT 2, Close Income & Growth VCT and Northern 3 VCT (which is closed but will re-open this year). Investment choice is greater with personal pensions, which usually offer a range of funds, with far lower charges than those of VCTs. VCTs typically impose initial charges of 5pc to 6pc of the sum invested and annual charges of 2.5pc to 3.5pc. Other deductions before returns delivered to investors often include performance fees of up to 20pc of any gains exceeding a pre-defined rate, for example 8pc a year.