12 October 23

Tax benefits and income potential of VCTs

They may not make the headlines too often, but Venture Capital Trusts (VCTs) are a Great British success story, and are becoming a part of regular financial advice. They make it possible for UK investors to own their own venture capital portfolio, helping to fund the growth of exceptional companies all over the UK and bringing much-needed investment and jobs into the economy. They are also a great way for investors to claim some generous tax reliefs while also earning a consistent income from their investment.

For those relatively new to VCTs, here are the three points making them increasingly popular with income-seeking investors:

  • Investors can claim up to 30% income tax relief on their VCT investment
  • VCTs offer a potential tax-free income stream
  • Any investment growth in the VCT is also tax free when the VCT shares are sold

Income tax relief

An individual investor 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, you must have paid or owe as much income tax during the tax year in which you invested. To keep any income tax relief claimed from HMRC, you must hold your VCT shares for at least five years. Importantly, income tax relief can be claimed against both earned and unearned income (such as the annual income you get from a rental property).

A potential tax-free income stream

VCT can provide a useful income stream through tax-free dividends. For example, the Triple Point Venture VCT has an annual dividend target of up to 5p per share, so investors can expect to receive an annual tax-free income from their investment. VCT dividends are completely tax-free and there’s no HMRC requirement to declare them on tax returns.

The potential for regular tax-free VCT dividends could prove especially attractive for high earners, considering the tax-free dividend allowance will be reduced to just £500 from 6 April 2024. An additional-rate taxpayer would need to receive an annual gross income of more than 8% from a unit trust or investment trust to match the income earned from a 5% tax-free VCT dividend.

Any growth in the VCT is tax free

When it comes time to sell the VCT shares, any capital gains made on the sale value are also tax free, meaning there’s no Capital Gains Tax bill to pay even if the shares have risen in value. Growth is an important aspect of any VCT. That’s why the Triple Point Venture VCT gives investors access to a portfolio of 45 ambitious early-stage companies. These businesses have all been backed at the pre-seed or seed stage of their growth journey, because this is where the potential for meaningful returns begin.

Understanding the risks

Of course, every potential VCT investor should understand the risks associated with making an investment.  Investing means capital is at risk and you could lose all your money. The value of your investment, and any income from it, can fall as well as rise, and you may not get back the full amount you invested. A VCT is high risk investment and may not be suitable for all investors, and it is generally accepted that some investments within a VCT portfolio will fail. You should not consider investing in a VCT unless you already have a diversified investment portfolio.

New share offer

The Triple Point Venture VCT is now open for investment, giving investors access to a portfolio of ambitious early-stage companies, and the opportunity to claim income tax relief, and tax-free capital gains and tax-free dividends.

Find out more about the Triple Point Venture VCT

Important information

This article is an advertisement for the purposes of the Prospectus Regulation Rules and is not the prospectus. The Triple Point Venture Fund VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status. Investors should only subscribe for shares on the basis of information contained in the Prospectus which is available via the Documents section of the website. 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