Wealthier investors taking a long-term view
A Venture Capital Trust (VCT) 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.
Strict rules
There are very strict rules on how VCTs can invest your pooled money in order to qualify as VCTs. Investments in them carry tax relief to encourage you to invest in these smaller, higher risk companies. By pooling your investments with those of other clients, VCTs allow you to spread the risk over a number of small companies.
You can invest by subscribing to new shares when a trust is launched or by buying shares from other investors when the trust has been established.
Tax credit
You receive Income Tax relief when you buy newly issued VCTs, currently at the rate of 30% on investments of up to £200,000 per tax year. This relief is provided as a tax credit to set against your total income tax liability and, therefore, cannot exceed your total tax liability for the tax year. You won’t receive this tax relief if you buy existing VCT shares.
Capital gains tax
You have to hold shares in a VCT for at least five years to keep the income tax relief – if you have to sell them before then, you’ll lose this benefit. In addition, there is no capital gains tax to pay on profits from selling your VCT shares, no matter how short a period you have held them, provided the company maintains its VCT status.
Newly-issued shares
You can sell your shares in VCTs at any point – but in practice, you lock your investment in for at least five years if you invest in newly issued shares. Any tax credit you receive will be claimed back by HM Revenue & Customs if you sell them before then.
