Website: Octopus Asset Management

Venture Capital Trusts (“VCTs”) were launched by the Government in 1995 to encourage individuals to invest in a diversified portfolio of smaller UK companies. Since 1995, around 30,000 UK individuals have invested more than £1.6 billion in VCTs.

VCTs have the advantage of being one of the most tax efficient investment products open to the UK population. The specific advantages available to investors are:

• Up-front tax relief of 20 per cent of the amount invested. This means that for every £10,000 you invest in a VCT, the Inland Revenue will reduce your income tax bill by £2,000. Effectively, the investor is 20% ahead before the VCT manager even starts investing the money. To keep this relief, investors must hold the shares for at least 3 years;
• All dividends are exempt from income tax;
• Profits on disposal of the shares are exempt from capital gains tax; and
• Up to 40 per cent capital gains tax deferral. This provides you with the opportunity to defer capital gains liabilities by investing the value of any chargeable gains in the fund.

All of these advantages are available to qualifying subscribers on total investments of up to £100,000 in any one tax year.

While the majority of investors in a VCT will benefit primarily from the 20% income tax relief, some investors will also be able to take advantage of the CGT deferral. Currently, a large percentage of these investors are individuals exiting the property market and looking to shelter their capital gains through the VCT structure.

The capital gains tax relief applies to 40% of the amount invested (i.e. an investment of £100,000 would enable £40,000 of a capital gain liability to be sheltered). This effectively postpones the payment of the original gain - it becomes payable at the point at which the shares are sold.

The table below illustrates the effect of the income tax relief and the capital gains tax deferral opportunities.

Investors should obtain their own independent financial advice on their eligibility for tax relief

Founded in 2000 by a team of fund managers from Mercury Asset Management, Octopus is a rapidly growing fund management company committed to bringing innovative, high-return fund management products to the broadest possible market.

We believe that existing investment managers and marketing strategies make it difficult for many individuals to access quality investment products. Furthermore, we believe that an open, honest, and educational approach is necessary to help the investor make the best decisions. Our aim is simple – to offer the best products on the market and to generate significant capital growth for a broad range of clients.

At Octopus, we pride ourselves not only on our team’s history of excellent investment returns but also on the level of service that we provide to our investors. We take a very different approach to most other asset management companies and encourage our investors to be as involved as they want to be in the investment process. We are proactive in building a relationship with our investors and, as well as sending out regular investment updates and holding investment seminars, we encourage them to speak directly to the fund managers who are investing their money.

The traditional approach to investing is no longer working. Most fund managers in charge of traditional fund management products (unit trusts / ISAs) have lost their clients’ money over the last three years and their ability to recoup these losses is heavily reliant on the overall performance of the stock market. At Octopus, we don’t manage our clients’ money relative to a benchmark. For example, many fund managers would consider it a success if their fund is down by 20% when the index is down by 30%. We don’t and neither should you.

Unlike other fund managers, we don’t invest all your money immediately but rather over a prolonged period. This means that we’re not betting on short-term stock market direction, which is
difficult or impossible to predict.

In practice this means that VCT fund managers can be highly selective and will only invest when they are satisfied that they have found the right company at the right price. Compare this situation to a unit trust which has to be 90% invested in the stock market with the result that its returns are almost entirely dependent on market performance.

Phoenix VCT was launched in December 2002. As a product, it is designed to provide investors with compelling tax benefits as well as the opportunity for achieving attractive returns in all stock market conditions.

The fund will invest in a diversified portfolio of established UK companies listed on the Alternative Investment Market (“AIM”). As background, the AIM market is below the level at which it launched in 1995 and most companies’ share prices have collapsed. We believe that there has been little discrimination in this sell-off between good and bad companies and that this provides an ideal backdrop for the patient and experienced investor.

The team involved in managing this fund has over 35 years of experience evaluating and making investments and has managed some of the best performing smaller company funds over both one and five years.

Since launch, Phoenix has been the most successful VCT launched this tax year and has received excellent endorsement from the independent fund commentators:

“Overall we rate this first in its category based on …the experience of the investment team and a good set of fees”. (Source: Martin Churchill, Tax Efficient Review)

“Their unique approach, combined with the investment focus on later stage companies, means that Phoenix VCT has both the potential to outperform and at the same time have a lower risk profile." (Source: Ben Yearsley, Hargreaves Lansdown)

Phoenix VCT has accounted for around 50% of all inflows into the VCT asset class since its launch in December 2002. The fund will close at the beginning of April 2003.

For more information on VCTs in general, or specifically on Phoenix VCT, contact the team at Octopus Asset Management on 0800 298 4471 or visit www.octopusam.com.

Rupert recently invested a sum of money in a VCT managed by Octopus Asset Management. He is delighted with the tax savings and impressed with the service provided by the fund manager, Octopus Asset Management:

“I recently sheltered a capital gain liability by investing in Octopus’ VCT and am delighted with the tax breaks and the level of service from the Octopus team.

“I had a £60,000 capital gain resulting from the realization of an investment. I invested the whole amount in the VCT and received £12,000 from the Inland Revenue in the form of my 20% income tax relief. This investment also sheltered my Capital Gains Tax (CGT) liability of £24,000 because of the 40% CGT deferral available with the VCT.

“These tax breaks have saved me £36,000, as my investment of £60,000 effectively cost me £24,000. I sent the Inland Revenue the form I received from Octopus and my tax bill was adjusted accordingly. In years to come the dividend income and the capital gains from the fund will also be tax free, increasing the effective return that I receive from the VCT.

“Octopus have so far managed the fund itself very effectively. As markets fell sharply in 2002 it was a relief to know that Octopus had not blindly invested the money in the market, which would have led to losses. The VCT is now able to invest at much more attractive valuations, which I expect to yield handsome (tax free) returns in due course.”

Simon Rogerson of Octopus Asset Management commented:

“Rupert’s experience with the VCT is indicative of the vast majority of our investors who are able to take advantage of the tax breaks. It is amazing that the retail investment community is just not aware that this vehicle exists. We find that people are delighted to learn firstly of the existence of VCTs, and secondly how easy it is to invest and then to claim the tax breaks they are entitled to.

“We believe that the traditional approach to investing is no longer working. Many fund managers have lost their clients’ money over the last three years and their ability to recoup these losses is heavily reliant on the overall performance of the stock market. At Phoenix VCT, we don’t manage our clients’ money relative to a benchmark. For example, many fund managers would consider it a success if their fund is down by 20% when the index is down by 30%. We don’t and neither should you.”

Octopus Asset Management is currently taking subscriptions for the Phoenix VCT
Contact the Octopus team on 0800 298 4472