Managers of Venture Capital Trusts (VCTs) were disappointed that the Pre-Budget Report failed to spell out future plans for the tax reliefs the trusts currently enjoy.

At present investors in new VCT shares receive 40 per cent income tax relief. However, this two year temporary measure is due to come to an end this coming April. Many managers of VCTs, which must invest in unquoted or AIM companies raising capital, were expecting the Chancellor to announce plans for the following tax year today.

However, the only mention of VCTs stated that ‘The Government remains committed to ensuring the long-term sustainability and success of the VCT market, and will announce the future level of VCT reliefs at Budget 2006.’

ISIS Equity Partners, which manages over £150 million of VCT money across the four Baronsmead trusts, was disappointed.

Lead manager David Thorp said ‘The private equity job market is highly competitive and it is important for management groups to have a sense of what the future VCT market will look like lest they need to further expand their teams. They won’t know this for sure until the 2006 Budget which will be just weeks before the end of the financial year.’

He added that ‘Given the uncertainty over how long the current 40% income tax incentives are in place, we expect demand to remain strong for VCTs currently raising funds.’

AIM investors were reassured that there was no mention of changing the rules surrounding the tax reliefs that they currently enjoy. These allow capital gains tax to fall to 10 per cent after two years and for the shares to be outside inheritance tax calculations as well.

Prior to the Pre-Budget Report, there had been discussions that Gordon Brown might curtail these breaks for larger AIM companies worth more than £100 million, following the recent flurry of larger AIM flotations lately.

Investors looking to take advantage of new pensions legislation allowing residential property to be put into Self Invested Personal Pensions (SIPPs) will be disappointed that only residential property put into new collective investment trusts will qualify for SIPPs. This prevents people putting holiday homes or their own residence into such schemes.

Backers of other property funds may benefit as these can be converted into new Real Estate Investment Trusts (REITs), which are immune from corporation tax as long as ‘at least 95 per cent of net taxable profits on rental income [is distributed] to investors, who will then pay tax at their marginal rate.’