Venture Capital Trusts (VCTs) ...
The Venture Capital Trust scheme started on 6 April 1995. It is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts (VCTs). So, if you invest in a VCT, you spread the investment risk over a number of companies.
VCTs are companies listed on the London Stock Exchange, and are similar to investment trusts. They are run by fund managers who are usually members of larger investment groups. Investors can subscribe for, or buy, shares in a VCT, which invests in trading companies, providing them with funds to help them develop and grow. VCTs realise their investments and make new ones from time to time.
Tax relief available for investors
Tax relief is only available to individuals aged 18 years or over and not to trustees, companies or others who invest in VCTs.
- exemption from income tax on dividends from ordinary shares in VCTs ('dividend relief'), and
- 'income tax relief' at the rate of 30% of the amount subscribed for shares issued in the tax year 2006/07 and onwards (for subscriptions for shares issued in previous tax years the rate is 40%). The shares must be new ordinary shares and must not carry any preferential rights or rights of redemption at any time in the period of five years (three years if the shares were issued before 6 April 2006) beginning with their date of issue. You can get this relief for the tax year in which these 'eligible shares' were issued, provided that you subscribed for the shares on your own behalf, the shares were issued to you, and you hold them for at least five years (three years if the shares were issued before 6 April 2006).
- The income tax relief at 30% is available to be set against any income tax liability that is due, whether at the lower, basic or higher rate.
Capital gains tax (CGT) relief.
There are two types of Capital Gains Tax relief
- you may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares. (This is called disposal relief).
- if you invested in shares issued before 6 April 2004, you may be able to treat gains arising on disposals around the time your VCT shares are issued as postponed to a later year. (This is called deferral relief.) You must have received income tax relief on the investment in VCT shares and the VCT shares must be issued in the period beginning 12 months before and ending 12 months after the gain arises. Deferral relief is not available in respect of investments in shares issued after 5 April 2004.
You can get two of the reliefs, dividend relief and CGT exemption, for both newly issued shares and second-hand shares acquired, for example, through the Stock Exchange. But income tax relief (and, where the shares were issued before 6 April 2004, deferral relief) can be claimed only if you subscribe for new shares.