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Venture Capital Trusts

Venture capital trusts (VCTs) are very attractive from a tax point of view but they are a higher risk investment.

VCT's are HMRC approved investment companies that are quoted on the London Stock Exchange, which invest mainly in unquoted trading companies. The VCT allows private investors to invest indirectly in those smaller companies that are in need of financial backing, by purchasing shares in the VCT.

As the carrot for investing in these high risk businesses, you receive 30% tax relief on the investment made as long as you hold the VCT shares for at least 5 years. As a result every £10,000 you invest will only cost you £7,000 because of the tax relief.

In addition there is no income tax on dividends received from the VCT, and no capital gains tax when you come to sell the investment.

Although some of the companies the VCT invests in may do very well, others never make it. However, some VCTs will invest in more established companies.

Making the Investment

You usually need to be making a minimum investment of around £5,000.

Whilst there is no limit to the amount you can invest, you only receive tax relief on the first £200,000.

Because the trust is quoted on the stock exchange (or any EU regulated market) it is possible to buy and sell at any time. However, when you do so, you lose the up-front tax relief if you sell within five years and the purchaser does not get any tax relief on their purchase. As a result the price you get if you sell may not be very high.

The Investment rules for the VCT

The VCT must comply with a number of conditions to retain its HMRC approved status. These are the main rules...

The qualifying holdings must...

How We Can Help You

We can advise you on the tax treatment of Venture Capital Trust investments. This is a complex area and expert advice is essential.