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June 11, 2019

An Introduction to Venture Capital Trusts (VCTs)

Venture Capital Trusts ("VCTs") represent a tax efficient way for investors to unitise their investments across a number of qualifying entities.

A VCT is actually a company which is quoted on a UK stock market.  That company in turn owns shares or equity, or lends money to unconnected trading companies.

New shares listed on the stock market attract better tax benefits than shares which are bought on the stock market.   The tax benefits for newly listed shares are as follows:

  • 30% income tax relief on annual investments of up to £200,000. This tax reducer can reduce a tax liability to zero, but cannot in itself create a repayment.  The individual must hold the VCT shares for more than 5 years to consolidate this.
  • There is no income tax to pay on dividends from VCT companies on the first £200,000 invested.
  • No capital gains tax on the sale of VCT shares. Similarly, losses incurred on a sale of VCT shares are not allowable for capital gains purposes. This exemption only applies to the first £200,000 of shares acquired in the year, and any shares acquired in excess of this threshold are chargeable assets.

Investments in VCTs are inherently risky and an exit for share holders is not always guaranteed, as the market for funds can be slow.

This being the case, VCT providers often categorise their funds as being ‘generalist’, ‘planned exit’ or ‘AIM listed’ VCTs.

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