14 August 23

Refresher: the basics of VCTs

Ahead of the Triple Point Venture VCT new share offer, we’ve put together a quick refresher on Venture Capital Trusts.

What is a VCT?
Venture Capital Trusts (VCTs) have been an established part of the UK investment landscape since 1995. They were introduced by the then government as a way of boosting private sector growth, by giving individual investors the ability to invest in the kind of companies that previously only received venture capital funding.

VCT investing goes from strength to strength

Fast-forward to present day, and the success of VCTs is remarkable. Over the last two tax years, VCT fundraising has topped £1 billion both times. That money is being invested into ambitious early-stage UK companies, creating new job opportunities, fostering world-class innovation, and contributing significantly to the UK’s economic growth overall.

VCT structure
All VCTs are public limited companies, so their shares are listed on the London Stock Exchange. Therefore, VCT investors own shares in the VCT, not shares in the underlying companies. However, owning VCT shares means investors participate in the overall success of the portfolio.

As with other publicly-traded companies, VCTs hold Annual General Meetings (AGMs) where shareholders can vote on key decisions. They have independent boards of directors to supervise investment activities and strategy, and must publish an annual report and have independently audited accounts.

VCT tax reliefs
Recognising that not all early-stage companies will be successful, and that many will fail, the government introduced several tax benefits to make investing in a VCT tax-efficient. These tax reliefs are:

  • Up to 30% upfront income tax relief – claimed via a Self-Assessment tax return or by asking HMRC to adjust your tax code
  • Any dividends paid by the VCT over the lifetime of the investment are tax-free
  • Tax-free growth on the value of their VCT investment – so no capital gains tax to pay

How much can be invested in a VCT?

Investors can invest up to £200,000 in VCTs per tax year, and can therefore claim income tax relief of up to  £60,000, depending on the value of their investment. But to benefit fully from the available relief, investors must have paid or owe as much income tax during the tax year in which they invested. To keep any income tax relief claimed from HMRC, VCT shares must be held for at least five years. 

Growing popularity of tax-efficient investments

With more people today paying higher rate tax, tax-efficient investments like the Triple Point Venture VCT are playing an increasing role to in tax planning. Nevertheless, the tax incentives are there to help compensate for the higher risks of investing in a VCT, so it is important to always recognise that VCTs are higher risk in nature.

Important information

Investors’ capital is at risk. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on VCTs maintaining their qualifying status. This article has been approved by Triple Point Administration LLP, which is authorised and regulated by the Financial Conduct Authority.

Tags on this post: adviser education, vct