03: Venture capital trusts

VCTs are listed investment companies which invest in unlisted companies. They were first launched in 1995 and were given a major, but temporary, boost in 2004/05 and 2005/06, when income tax relief was raised to 40%.

The main tax reliefs for VCT investment are:

Income tax reliefs

Tax relief is given at the rate of 30% on investments of newly issued VCT shares. The relief is given in the same way as EIS, so you do not need to be a higher rate taxpayer to benefit from the full relief. Relief is now clawed back if the VCT shares are disposed of within five years. The maximum investment that can qualify for income tax relief is £200,000 per tax year, and there is no carry back option.

Dividends on VCT shares (up to the £200,000 per tax year acquisition limit) are free of personal higher rate tax. However, the 10% tax credit cannot be reclaimed.

Capital gains tax reliefs

Any disposal of VCT shares (up to the £200,000 per tax year acquisition limit) is exempt from capital gains tax. Losses are not allowable.

Capital gains made within a VCT are also free of capital gains tax and can be distributed as dividends.Last Updated