What are the VCT (Venture Capital Trust) tax reliefs?

To encourage VCT investing, the government offers extremely generous tax reliefs to investors as an incentive.

First of all, what is a Venture Capital Trust? 

Venture Capital Trusts (VCT) are specialised funds designed to invest in new, small but innovative companies that will benefit from their financial support.

In order to be classified as a VCT, a fund must meet the following criteria:

• VCTs are listed on the London Stock Exchange
• Companies under the VCT must have no more than 250 employees
• Before the investment, companies under the VCT must have no more than £15 million in gross assets

So, what are the tax reliefs?

The tax reliefs are split into two categories: when you begin VCT investing and when you exit your VCT investment.

When you invest in a VCT, you are entitled to:

• A cool 30% income tax relief – not bad, eh?
• Income tax relief against a loan to a social enterprise
• Tax-free dividends (if earned from VCTs)

🚨 Hold up! There’s one condition. You need to hold the VCT shares for a minimum of 5 years. Otherwise, you’ll have to pay the income tax relief back to HMRC. 🚨

When you exit a VCT investment, there are still tax reliefs to take advantage of:

• Gains from selling your VCT shares are 100% exempt from Capital Gains Tax

This applies for both newly issued shares and shares bought on the secondary market and there is no minimum on how long you have to hold the shares. 

You are allowed to claim these reliefs up to 4 years after the end of tax year of assessment in which you made the VCT investment.

Bear in mind; unlike EIS, SEIS, and SITR investments, VCTs are not eligible for Inheritance Tax Relief.

How do I invest in VCT funds?

Whilst VCTs can potentially give investors a high return, this comes with higher risk. Nonetheless, there may be a place for VCTs in your portfolio of tax-efficient investments.

Investing is never without capital risk so we will always recommend seeking advice from a professional before jumping into anything. You should never invest only because of the tax reliefs.

However, if you’ve done your research and you’re 100% certain that investing in small companies through VCTs is for you, you can find VCT funds through platforms such as:

• Wealth Club
• Interactive Investor
• Hargreaves Lansdown

The maximum amount you can invest is £200,000. 

Is there another investment scheme?

Yes, in fact, there are three more! The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). These schemes also offer generous tax reliefs.

All four schemes were launched by the government in the early 90’s with intent to help small businesses grow. They are authorised and backed by the financial conduct authority.

Can TaxScouts help with VCT reliefs?

Of course we can!

All you have to do is sign up and we’ll assign you one of our accredited accountants who will be able to file your self assessment tax return for you in as little as 48 hours – tax reliefs included!

It’s really that simple with TaxScouts – find out more here.