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Venture Capital Trusts

Venture Capital Trusts (VCTs) were introduced by the Government in 1995 to encourage individuals to invest in smaller, less established but growing companies.

VCTs are very similar to investment trusts as they raise money from individual investors in a pooled fund to invest in a company or portfolio of companies, which reduces risk.

The main advantage of VCT's are the tax benefits. They have an initial 30% income tax rebate on the initial investment and no tax to pay on income or gains from the trust in the hands of the investor. You can, as a UK resident invest up to £200,000 per annum however, you must hold the investment for five years.

Tax Advantages

The reliefs detailed below apply only to individuals - not trustees, companies or other types of investor.

  • Income tax relief is available within limits (maximum of 30% of the investment amount of up to £200,000 per tax year (i.e. £60,000 tax relief), or the investor’s actual income tax liability for the tax year if less). This relief is available on purchase of new ordinary shares only (unlike the reliefs below).
  • No capital gains tax on disposal for shares acquired within the £200,000 investment limit (this applies to new ordinary shares or those purchased second-hand, for example through the Stock Exchange).
  • Dividends are exempt from income tax (except for the 10% non-reclaimable tax credit) – however, as dividends are likely to be low there should be a requirement for capital growth. This relief also applies to new ordinary shares or those purchased second-hand.

The main conditions a company must satisfy for HMRC to approve it as a VCT are that:

  • At least 70% of the investment by value must be in qualifying unlisted trading companies (Qualifying Investments) which includes companies listed on the Alternative Investment Market (AIM).The shares or securities which meet the conditions of the scheme and which were issued to the company must continue to be held by it. From 6 April 2007 any money that a VCT holds will be treated as an investment for the purpose of these tests. This 70% requirement means that it is possible for up to 30% of the assets to be "blue chip" share holdings.
  • Not more than 15% of the fund must be invested in any single company or group.
  • At least 70% of the VCT's qualifying investments by value must be in new ordinary shares in qualifying companies which can include those with certain preferential rights. At least 10% of the holding in each company must be ordinary shares.
  • The balance of the investments in qualifying companies can be in other shares or debt, such as debentures or some other fixed or variable interest stock.
  • The VCT must not have retained more than 15 per cent of the income it derived in the accounting period from shares or securities.
  • In meeting these limits, a VCT cannot invest more than 1 million in total each year in any single qualifying unlisted trading company, the gross assets of which must not be more than 15 million before the investment and 16 million immediately after (these increased figures apply from 6th April 2012. Prior to that date the figures were 7 million and 8 million respectively).
  • The company must satisfy a number of other conditions broadly similar to Enterprise Investment Scheme (EIS) companies.
  • HMRC will be able to give provisional approval to a VCT if it is satisfied that the conditions will be fulfilled within specified time limits. VCTs will initially have up to three years from the date of each share issue to meet both the 70% unlisted trading company and the 70% ordinary share requirements.
  • A company no longer needs to have a qualifying trade carried out wholly or mainly in the UK but it is necessary for it to have

VCTs are high risk investments and it's important to remember that VCT shares are not liquid even when registered on the London Stock Exchange. This is a very specialised investment area and it is best to seek professional financial advice before making any decisions about investing. The value of shares and income from them may go down as well as up and you may not get back the amount you originally invested.

 

Vintage Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. FCA Number 593380. Registered in England and Wales No. 07879453.
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk