Most investors in VCTs buy them new. They subscribe to new issues in the VCT season just before the end of the tax year, so that they can offset this year's income tax against the amount of the subscription.

But in fact, VCTs also offer long term tax advantages since no tax is payable on either the income from dividends or any capital gains made on a VCT - whether you bought it new or 'second hand' through a broker. 

I'm going to be relying on my investment income to fund my lifestyle for the next couple of years and quite a number of VCTs showed up as possible yield machines. They are also, most of them, available at quite significant discounts to net assets, though of course it has to be said these assets are mainly shares in privately held companies, so not as easy to value or as reliably valued as the more liquid quoted shares in which plain vanilla investment trusts tend to invest.

Not all VCTs are created equal - some investment houses have better records than others. Northern seems to be regarded by many as one of the better investment managers and has a good record, so I started by looking at shares in three of their VCTs; Northern Venture Trust (LON:NVT), Northern 3 Vct (LON:NTN) and Northern 2 Vct (LON:NTV) .

All three are quoted on discounts of 15% or so - quite some way above the average for investment trusts - while offering yields of between 5 and 11 percent. That looks very tempting, so I ran an eye over the annual reports. The spread of investments looks reasonable, offering good diversification, and maturing investments have enabled the funds to free up funds (which can then be paid out as dividends). The only fly in the ointment is that the portfolios of all three trusts look fairly similar, so you won't get much diversification by buying all three of them.

I also checked out the dividend history; all three funds appear to be regular payers and keeping their payouts reasonably level (though Northern Venture Trust (LON:NVT) missed the final payment last year, it had two interim payments). That's quite important, since some VCTs that appear to have high yields are affected by major one-off asset sales.

To explain this…

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