Case Study: Risks are higher but returns are better than cash

Tax relief was the lure that attracted Ian Gellatly to venture capital trusts (VCTs) and the retired solicitor predicted that more investors will follow his lead after the Budget boost for the schemes.

Ian, of Coatbridge in North Lanarkshire, has been a keen VCT investor for several years after being introduced to them by his brother. It is the combination of the tax benefits and the fact that VCTs support small businesses that appeals to him.

He says: "People invest in VCTs because of the tax relief and because there is no capital gains tax on the dividends. But we also depend on venture capitalists to support start-up businesses."

He currently invests in six VCTs, each of which support a range of start-ups and small businesses. He tends to use the VCTs run by Albion Ventures, which has supported Scottish firms including TEG Group and Forth Photonics.

"It's best to spread the money around and not stick with just one or two VCTs in case one goes pear-shaped," he says. "I invest the minimum, usually 3,000 or 5,000 in each one."

Ian believes that with savings accounts failing to keep pace with inflation, more pensioners will be looking towards riskier options. But he offers a note of advice: "There are high-risk investments, there is no kidding about that, but the returns from them are much better than you can get on cash. You have to read the prospectus and get advice. Don't jump into it."

Ian has not previously invested in enterprise investment schemes because of the lower tax relief, but that will change after last week's Budget.

"The three-year holding period on enterprise investment schemes is a huge attraction. A lot of people investing in VCTs are pensioners and they want shorter holding periods."