It’s venture capital trust share sale season

For investors, the allure of VCTs is two-fold. First, they are one of the few opportunities for ordinary investors to build exposure to very early-stage businesses.

These start-ups and scale-ups offer high growth potential but are also prone to crashing and burning, so a portfolio approach, managed professionally, provides crucial risk mitigation.

Second, VCTs are a valuable financial planning tool. They offer generous tax reliefs at a time when incentives on other savings structures are under scrutiny. And they can be managed to prioritise capital growth or income, according to individual investors’ needs.

It’s important to consider the risks of these funds too. Critically, investors must be comfortable with the risk and return profile of this asset class. VCTs aren’t allowed to invest in businesses that are more than seven years old, or that have more than £15m of assets; it’s a much riskier area of the investment market than, say, listed equities.

Still, if that doesn’t put you off – and you already have a spread of less risky assets – the tax reliefs are very attractive. You get 30% upfront income tax relief on all investments in new VCT shares, and all income and gains are tax free. Plus, you can put up to £200,000 a year into VCT investments.

Compared to individual savings accounts (ISAs) and private pensions, which have annual investment limits of £20,000 and up to £60,000 respectively, that’s pretty chunky. It opens up the possibility of building much larger portfolios of tax-efficient investments for the long term. Indeed, many savers now see VCTs as an integral element of their retirement planning strategy.

Equally, VCT managers recognise that a large number of investors have more immediate needs, particularly for income in the current low interest rate environment. While the companies in which VCTs invest are typically not mature enough to pay dividends, VCT managers often structure their funds to distribute income, typically through dividends funded from exits from companies, so the sector has become increasingly attractive to income seekers in recent years.

Given these attractions, don’t bank on popular VCTs from the most respected managers remaining on sale for an extended period. The sector suffers from something of a crunch effect – only new shares qualify for upfront tax relief so managers need to launch issues each year, but they must also be careful not to raise more money than they can deploy in attractive investment opportunities.

The result is that VCT share issues are capped – and will be closed once they hit their targets. That said, buy now while stocks last is the wrong message to give about any investment and VCTs are no exception.

Take your time to decide whether a VCT is appropriate for your needs and risk preferences, rather than rushing to invest. Equally, however, have that debate sooner rather than later – this year’s autumn harvest of VCTs may be plentiful but there may still not be enough to go around.