Tax benefits and risks of investing in VCTs

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VCTs offer various tax benefits to qualifying UK income tax payers aged 18 years or over. 

Tax Benefits

Investors may qualify for 30% Income Tax relief when subscribing for new VCT shares, subject to an annual investment limit of £200,000 and a minimum holding period of five years.  However, investors cannot claim more Income Tax relief than the total amount of Income Tax paid in the year in which shares are subscribed.

Investors subscribing within the maximum investment limit of £200,000 per annum are exempt from tax on any capital gains on disposal and all dividends received are free of tax.  Income Tax relief may be claimed upfront through your PAYE coding or otherwise through a reduction in your payments on account.

Tax treatment may change

The Risks

VCTs should be considered longer term investments and may be higher risk and more difficult to realise than other securities listed on the London Stock Exchange.

The secondary market for shares in VCTs is limited and as a result the shares usually trade at a discount to net asset value. Past performance should not be seen as an indication of future performance. The value of shares in a VCT, and any income from them, may fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

VCTs are designed to invest equity risk capital in small, unquoted companies and each VCT will invest in  a portfolio of such companies. Investing in small companies is inherently risky and these companies may not perform as hoped and in some circumstances may fail completely.

VCTs must deploy 70% of funds raised in VCT qualifying investments within three years and shareholders must hold their shares for a minimum of five years to retain the 30% income tax relief.

Find out more about the tax benefits and risks associated with VCTs from HMRC by clicking here.

Tax treatment will be specific to the individuals circumstances