Venture Capital Trust

A Venture Capital Trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies and capital gains for investors

A Venture Capital Trust is a company whose shares trade on the London stock market. A VCT aims to make money by investing in other companies. These are typically very small companies which are looking for further investment to help develop their business.

There are very strict rules on how Venture Capital Trusts can invest your pooled money in order to qualify as VCT

Investments in Venture Capital Trusts carry tax relief to encourage you to invest in these smaller, higher risk companies. By pooling your investments with those of other customers, VCTs allow you to spread the risk over a number of small companies.

The tax relief on Venture Capital Trusts comes in a number of different forms and with varying risks.

• The Income Tax relief is 30% on a maximum investment of £200,000 per tax year when you buy newly-issued shares. This is claimed back if you sell your shares within five years, unless you sell them to your spouse or you die.

• Tax relief is provided in the form of a tax credit to set against your overall income tax liability in the tax year. The amount of the tax credit cannot, therefore, exceed your total income tax liability for that tax year.

• Dividends from investments in VCTs do not attract income tax provided the original investment was made within the permitted maximum of £200,000 per year.

You won’t have to pay any Capital Gains Tax on gains from investments in Venture Capital Trusts and there is no minimum holding period for this rule to apply. But if your VCT investments make a loss, you can’t use this to reduce your Capital Gains Tax bill from other investments.