Venture Capital Trusts

The VCT scheme started on 6 April 1995. It is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts (VCTs). So, if you invest in a VCT.

VCTs are companies listed on the London Stock Exchange, and are similar to investment trusts. They are run by fund managers who are usually members of larger investment groups.

VCTs must be approved by the Inland Revenue for the purpose of the scheme. If you invest in them you may be entitled to various Income Tax and Capital Gains Tax reliefs.

Tax reliefs available for investors:

(Tax reliefs are only available to individuals aged 18 years or over)

Income Tax reliefs:

  • Exemption from Income Tax on dividends from ordinary shares in VCTs (‘dividend relief’).
  • ‘Income Tax relief’ at the rate of 30 per cent of the amount subscribed for shares issued in the tax year(up to a maximum of £200,000). The shares must be new ordinary shares and held for at least five years and must not carry any preferential rights or rights of redemption at any time in the period of five years The Income Tax relief at 30 per cent is available to be set against any Income Tax liability that is due, whether at the lower, basic or higher rate.

Capital Gains Tax reliefs:

There is a Capital Gains Tax relief:

You may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares. (This is called disposal relief).

You can get two of the reliefs, dividend relief and Capital Gains Tax exemption, for both newly issued shares and second-hand shares acquired, for example, through the Stock Exchange. But Income Tax relief can be claimed only if you subscribe for new shares.

Venture Capital Trusts are high risk investments and not suitable for many investors.However, the tax attration can be a compelling reason for using such an investment particularly for a client who has used up his or her full entitlement to tax relief on pension contributions. The Trusts are normally only on offer for a limited period so if you are interested in such an investment please let us know and we can research the market for you