Venture Capital Trusts (VCTs)

Venture Capital Trusts (VCTs)

A Venture Capital Trust (VCT) is a fully listed company, similar to a quoted investment trust, which is approved by the Inland Revenue and whose investments must, after three years, be at least 70 per cent in qualifying unquoted trading companies. In this way, investors in VCTs can gain access indirectly to a professionally-managed portfolio of unquoted investments – which, for this purpose, can include shares in qualifying AIM and PLUS companies.

Investments in VCTs (whether purchased in the market or subscribed for) of up to £200,000 in a tax year entitle individual investors to the following tax reliefs:

  • exemption from tax on dividends
  • exemption from capital gains tax on disposal of shares in the VCT.

In addition, for subscriptions of up to £200,000 per annum in new ordinary shares issued by a VCT can qualify for 40 per cent initial income tax relief on the amount invested, provided the shares are held
for three years.

Note: the initial income tax relief of 40 per cent applies in relation to shares issued by VCTs in the tax years 2004/05 and 2005/06 only. The previous rate was 20 per cent.

Who can benefit from a VCT investment?
Most individual investors, subject to their personal circumstances, should be eligible -there is a maximum limit of £200,000 per annum which can be invested by each of a husband and wife.

Initial relief
An investor:

  • need not be UK resident but must be a UK taxpayer
  • must hold the investment for three years.