Venture Capital Trusts (VCTS)

The VCT 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 listed on the London Stock Exchange and provide capital finance for small, expanding companies with the aim of making capital returns for investors. They are a tax efficient way to invest into UK smaller companies.

Investors can invest up to £200,000 and receive tax relief on the investment. As little as £3,000 can be invested, which mean they are available to most investors.

Tax Relief is paid up front, and new VCT shares need to be held for 5 years in order to retain the initial tax reliefs. To retain Government approval as a VCT, 70% of its investments(by value) must be held in ‘qualifying holdings’ – shares or securities in companies which meet the conditions of the scheme.

This type of investment would be suitable for investors who are looking to:

Take advantage of income tax relief Diversify the existing investments by utilising a fund which typically does not follow stock market cycles Find alternative or complimentary solution to pensions Find potential significant capital growth in today’s financial markets How and when can I claim Income Tax relief when I invest in a VCT?

You should claim the relief in your tax return for the year in which the shares were issued. However, you do not necessarily need to wait until you send in your tax return to get the benefit of the relief. You can do this once the shares which qualify for the relief have been issued to you by contacting your Tax Office.

If you pay tax under PAYE, and want the relief immediately, you can ask your Tax Office to adjust your tax code.

If you do not pay tax under PAYE, but are due to make Self Assessment payments on account, you can, subject to certain conditions, make a claim to reduce these. To receive the relief this way, please contact your Tax Office and ask them to tell you the qualifying conditions for making a claim to reduce payments on account and explain how to make a claim. When making your claim, you must bear in mind that we will charge you interest or penalties or both if your claim proves to be excessive.

Whether or not you claim relief in either of these ways, you must enter details of your investment on your tax return for the tax year in which your VCT shares were issued. The amount of relief you get cannot exceed your Income Tax liability for that year. For example: if you subscribed £20,000 for shares issued in the tax year 2009-10 your maximum Income Tax relief would be £6,000. However, if your Income Tax liability in that year before any Income Tax relief is obtained in respect of your VCT investment is £5,000 that is the relief you will receive. The difference of £1,000 cannot be set off against the Income Tax liability of any other year.

The VCT will provide you with a certificate when you are issued with qualifying shares. Your tax office may ask you for this certificate when you claim Income Tax relief.