Venture Capital Trust (VCTs) and tax

Venture Capital Trusts were schemes introduced in 1995 to encourage individuals to invest in high-risk trading companies.

With a VCT the risk of the investment is spread over a number of companies.

VCTs must be approved by HMRC and must meet a certain qualifying conditions.

If you have subscribed for shares in Venture Capital Trusts and you are 18 or over when the shares were issued you are entitled to a few tax reliefs.

According to HMRC, these are the tax reliefs for investing in VCTs:

Income tax relief:

One of the income tax reliefs of VCTs is that you are exempted from income tax on dividends from ordinary shares. This is called dividend relief;

Another very important tax relief when investing in a VCT is called income tax relief .

The amount of the tax relief will be the smaller of the amount subscribed up to a maximum of £200,000 at 30% or the amount that reduces the tax bill to zero for the year.

The rate of 30% applies in the tax year 2006/07 and onwards and for subscriptions for shares issued in previous tax years the rate is 40%.

Capital gains tax (CGT) relief :

One of the CGT reliefs when investing in VCT schemes is called disposal relief as you may not have to pay CGT on any gain you make when you dispose of your shares. In order to qualify for the reliefs certain conditions need to be met. You can find more about them on HMRC website.

As there are no guarantees that VCT investments will be successful, Taxfile‘s tax agents recommend that you seek professional advice from financial advisers beforehand.