A venture capital trust (VCT) is a tax-efficient investment vehicle in the United Kingdom that provides funds to small, and early-stage businesses. CTs are either traded or unquoted on the AIM (originally known Alternative Investment Market) with the goal of making a profit for investors.

A Venture Capital Trust (VCT) is a type of investment company that is listed on the London Stock Exchange. It was created by the government in April 1995. VCTs were created to encourage investors to invest directly in a variety of small, high-risk companies whose shares are not traded on a regulated stock exchange. A VCT seeks to profit by investing in other businesses.

VC trusts are a type of publicly traded private equity fund. Investors can buy units of the fund straightforwardly from the fund in a primary issue or from the secondary market on the London Stock Exchange.

Venture Capital Trust – Tax Advantages

The following tax benefits are available to investors who purchase VCT shares on the secondary market (via an exchange):

  • Dividends from VCTs are exempt from income tax.
  • Exemption from capital gains tax on the sale of shares

Venture Capital Trust tax relief

Venture capital trusts are typically managed by fund managers who are members of larger investment groups. By investing in a portfolio on your behalf, these professionals spread the risk of investing in early-stage companies.

Tax breaks are available for investments in Venture Capital Trusts, which encourages you to invest in these smaller, higher-risk businesses.

  1. Income Tax Relief

Dividends paid on ordinary shares in VCTs are exempt from income tax.

Income tax relief of 30% on the value of newly subscribed ordinary shares. This relief is available on investments of up to £200,000 in a single tax year.

All shares should be held for at least five years or the income tax relief will be forfeited. The shares should be new ordinary shares with no preferential or redemption rights at any point in time within five years of the shares issuance.

  • Capital Gains Tax Relief

When you sell your Venture Capital Trust shares, you may not have to pay Capital Gains Tax on any profit you make (this is called disposal relief).

The Stock Exchange, for example, can provide you with two of the reliefs, dividend relief and capital gains tax exemption. However, you can only claim Income Tax relief if you subscribe for new shares.