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Venture Capital Trusts

Venture Capital Trusts (VCTs) offer similar tax benefits to individuals as the Enterprise Investment Scheme (EIS). Managed by various specialist fund companies, VCTs can be a valuable addition to your investment portfolio. At AHACCOUNTANTS, we provide guidance on tax-efficient investments in Nottingham and the surrounding areas. Here’s what you need to know about VCTs.

What is a VCT?

VCTs are publicly traded companies required to invest at least 70% of their funds in shares or securities of qualifying unquoted companies. They must adhere to specific criteria within a designated timeframe, including:

  • Distributing at least 85% of their income.
  • Ensuring no single holding exceeds 15% of the total value of their investments.

VCTs enjoy exemption from tax on capital gains, but there is no relief available for capital losses.

Reliefs Available to Investors

  1. Income Tax Relief: Investors can claim 30% income tax relief on subscriptions for VCT shares, up to a limit of £200,000 per tax year. To qualify for this relief, shares must be held for a minimum of five years.
  2. Dividend Exemption: Dividends received from a VCT are exempt from income tax, although the tax credits associated with these dividends are not repayable.
  3. Capital Gains Exemption: Any capital gains made on the disposal of VCT shares are exempt from tax, with no minimum ownership period required. However, capital losses on VCT shares do not qualify for relief.

Qualifying Companies for VCT Investment

The criteria for qualifying companies are similar to those under the EIS. A qualifying company must:

  • Be unquoted, although shares listed on the Alternative Investment Market (AIM) are treated as unquoted for VCT purposes.
  • Not be involved in dealing in land, leasing assets, or providing financial, legal, or accountancy services. Additionally, the company should not engage in trades with significant capital, such as property development, farming, hotels, or nursing homes.

The government periodically revises the definition of qualifying companies for VCT investment to ensure focused support for small and growing businesses, particularly innovative companies.