5 myths about Venture Capital Trusts (VCTs)

Venture Capital Trusts (VCTs) have been part of the investment landscape since 1995, when they were introduced to encourage investment in unlisted early-stage companies previously unavailable to individual investors. VCTs have since made an enormous contribution to the UK economy, with more than £12.5 billion invested in companies^[1], and helped create several household names, ranging from burger chain Five Guys to property platform Zoopla.

Thirty years on, and VCTs show no signs of slowing down. Despite the difficult economic backdrop, the 2024/2025 tax year was the third-best fundraising year for VCTs, with a combined £895 million raised from investors. Confirmation that the VCT scheme had been extended until at least 2035 was also welcome news for investors, financial planners and the companies that benefit from VCT funding.

However, despite their continued popularity, some advisers are still cautious about recommending VCTs to their client base, often citing concerns about suitability or the availability of tax benefits. Here, we debunk the five most common myths associated with VCT investing.

Myth 1: VCTs are only suitable for high-risk, higher-earning clients 

While VCTs are higher risk compared to more mainstream investments, this doesn’t mean they don’t merit a place in client portfolios, provided they are comfortable with the risks involved.

One of the most important aspects of owning a VCT is the diversification it offers to investors. A VCT will invest in a carefully selected portfolio of companies, at different stages of their development. This helps to spread the risk associated with investing in young and growing start-ups. VCTs also have investment restrictions, such as limits on the maximum investment in a single company, which encourages further portfolio diversification.

And the idea that VCTs are only suitable for clients with a couple of hundred thousand pounds to invest is also wide of the mark. While the maximum VCT investment eligible for income tax relief in a single tax year is £200,000, HMRC data shows the average amount invested is closer to £37,000.^[2] Not only does this mean you don’t need huge sums to be a VCT investor, but also the number of people in your client bank who could benefit from a VCT is likely to be larger than you think.   

Myth 2: VCTs are only for growth-seeking investors

While a VCT might invest in ambitious early-stage companies with clear growth potential, this doesn’t mean they’re only suitable for growth investors. The reality is that VCTs can also deliver a valuable source of tax-free income. Many established VCTs, such as the Triple Point Venture VCT, have a strong record of dividend payments. Although future dividend payments can’t be guaranteed, a VCT can play a useful role for anyone seeking a regular income from their investment.

Myth 3: VCT tax reliefs can only be claimed on earned income 

It’s a common misunderstanding that the 30% upfront income tax relief available through VCTs can only be claimed against earned income, such as a salary. In fact, it can be used to offset income tax on a wide range of income types, including rental income, pension income, dividends, and profits taken from a business. At Triple Point, we regularly hear of people using VCTs to reduce the tax paid on income from property portfolios, share dividends, and retirement drawdown. This opens up planning opportunities for a far broader range of clients to consider a VCT as part of broader income and tax planning strategies.

Myth 4: VCTs are just for tax planning at year-end 

Tax reliefs available through a VCT – including up to 30% upfront income tax relief, tax-free growth and tax-free dividends – are certainly attractive. However, they shouldn’t be the only reason to invest, and they shouldn’t only be brought up in conversations with clients around tax year-end. Treating them as part of an ongoing financial strategy, rather than a last-ditch tax solution, should lead to better outcomes for clients.

Importantly, we’ve found that clients who invest in a VCT often become repeat investors. Not only does it help them establish a valuable income generation strategy, but it also becomes a part of their ongoing financial planning. It’s become natural to think of pensions, Individual Savings Accounts (ISAs) and also VCTs, beyond the month of April.

Myth 5: All VCTs are broadly the same 

It’s easy to assume that all VCTs follow a similar approach, but in reality, they can differ significantly. Some target early-stage, high-growth tech firms, while others invest in more established scale-up businesses with proven revenues. For example, the Triple Point Venture VCT only invests in business-to-business (B2B) companies, avoiding business-to-consumer (B2C) firms. We do this because B2B companies stand the greatest chance of being acquired by a larger company at a later stage, thus providing an exit opportunity.

There are also variations in portfolio size, dividend strategy, and the level of risk each fund is willing to take. With such a wide variety of VCTs available, each managed by teams with distinct areas of expertise, it’s worth taking the time to assess each VCT on its own merits and consider how it aligns with the client’s specific objectives.

Important information

The Triple Point Venture VCT invests in smaller companies, which can involve a higher degree of risk than investing in companies listed on an exchange. Investor’s capital is at risk. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of the investor 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 website. This article has been approved by Triple Point Administration LLP, which is authorised and regulated by the Financial Conduct Authority.

[1] https://www.theaic.co.uk/aic/news/press-releases/venture-capital-trusts-celebrate-30-years-of-funding-great-british-startups

[2] https://www.gov.uk/government/statistics/venture-capital-trusts-2024/venture-capital-trusts-statistics-2024