I estimate that demand could approach £600m.VCTs come in three basic flavours: generalist funds, investing in unquoted companies in various development stages and in various sectors of the economy; AIM-based funds which invest in new shares issued by AIM quoted companies; and technology funds investing in internet related situationsHow can investors make a choice? There are a number of areas that are worth digging into in order to evaluate a VCT.1 Risk/strategy of the VCT. See what sectors and types of companies (start-ups, early stage, development, management buy-ins, management buy-outs, AIM) will form the basis of the fund. Fund managers with two VCTs running can invest in larger deals by co-investing. Larger deals are important as they should help to reduce risk.2 Management’s past track record. Comparing different rates of return between VCT managers is fraught with difficulties.3 Manager’s deal flow. This is not the number of proposals the manager receives as they all claim a very high figure. It is the relationship between the rate of closing deals in the last five years and the going rate that the VCT will require to meet the requirement to be 70 per cent invested in qualifying companies within three years.4 Management incentive.

How much do the managers and sponsors of the VCT take for themselves out of the gains Incentives are complicated and difficult to compare.5 Costs How much does the VCT cost to run over the first five years. Initial issue costs are usually around 5 per cent and annual running costs typically are capped at 3.5 per cent In addition, size is an advantage to a VCT. A larger VCT can invest in larger deals, should attract more interest and hence a more liquid market for its shares and should provide a greater spread of investments. In order to shelter a capital gain the investment must be made within a period that starts 12 months before and ends 12 months after the gain was realised.

This restriction can catch out IFAs and investors who do not plan ahead. Leaving sheltering too late may restrict the choice of VCT available.To sum up, the VCT combines tax reliefs, a quote, a spread of investments and a fund manager. For further details, call Tax Shelter Report on 0800 339999 Or visit www.tax-shelter-report.co.uk* Martin Churchill is Director of Research at the Allenbridge Group and Editor of Tax Shelter Report. Keeping your savings and investments out of the tax collector’s reach can boost your returns by around a quarter or more.

So whether you opt to put your money in a simple savings account or in the shares of internet companies, it makes sense to do it under the tax shelter of an Individual Savings Account (ISA). Keeping your savings and investments out of the tax collector’s reach can boost your returns by around a quarter or more. So whether you opt to put your money in a simple savings account or in the shares of internet companies, it makes sense to do it under the tax shelter of an Individual Savings Account (ISA).
ISAs were introduced in April 1999 by the Labour Government, replacing the Tories’ system of PEPs and TESSAs ISAs are very similar to their predecessors. They are not investments in themselves, but act as a wrapper for investments which keeps their returns and growth free of income and capital gains tax.They can be used to hold cash investments, such as an instant access savings account, stocks and shares in the form of investment funds or individual shareholdings, and insurance-based investments.There are annual limits on how much any one person can put into an ISA.When ISAs were first designed, the limits were higher for the first year of the scheme, but the Government has since decided to stick with these higher allowances at least until 2006.Up to £7,000 can be invested in ISAs in a tax year, with a maximum of £3,000 of this in cash and £1,000 in insurance. Before taking out an ISA, you have to decide whether the “mini” or “maxi” version of the wrapper suits you best. You can either take out a mini ISA for each element or investment type, or you can start with one maxi ISA which is usually capable of containing cash, equities and insurance.The advantage of choosing mini ISAs is that this allows you to shop around for the best provider in each category. For example the best-paying mini cash ISAs on the market pay interest at rates of more than seven per cent at the moment, but with a maxi ISA only b2 and First Direct pay a rate this high for smaller sums.However, if you do use mini ISAs, you are limited to £3,000 in stocks and shares investments per year.

With a maxi ISA, as long as you forgo the cash and insurance parts of the investment, you can shelter up to the full ISA allowance or £7,000 in stocks and shares. So if you are largely interested in stock market investment, a maxi ISA makes the most of this particular tax break.Some advisers argue that the tax breaks for stocks and shares ISAs are not necessarily worth having. After all, most unit trusts, investment trusts and open-ended investment companies (OEICs) – the funds contained within equity ISAs – produce capital growth rather than income. And as the individual only has to pay CGT on gains above £7,200 this tax year, the investment would have to be very large to exceed this.But if you hold your ISAs until retirement, for example, you may then want to switch the investments to income-prod-ucing vehicles, and as long as they remained within an ISA, any income would be free of income tax. This is more than you can say for pension income.There is one further type of ISA which is designed for savers who have maturing TESSAs. TESSAs, which were introduced in 1991, are deposit-based investments with strict rules and investment limits and a life of five years Follow-on TESSAs were introduced in 1996.