Efficient Investing

Tax-Efficient Investing for the UK Future



Posted on: 27th July 2023

Despite many things, the UK is a leading market of success with entrepreneurial small companies. The British resolve has seen many smaller businesses prosper over the last decade from small beginnings. However, starting small, ambitious companies need investment capital to grow and develop – and that is where a Venture Capital Trust (VCT) comes in.

A VCT is a publicly listed investment company operated by a fund manager quoted on the London Stock Exchange. VCT investment is to encourage individuals to invest indirectly in a fund with a range of young, innovative, unquoted and higher-risk trading companies – making more money by supporting their growth.

Before making any decision on VCTs, be sure to consult with the best independent financial advisers UK.

Introducing VCTs

VCTs were introduced by the UK Government in 1995 to encourage investment in Britain’s fresh, innovative business entrepreneurship. VCTs have helped create thousands of jobs since they appeared, rewarding innovation and strengthening the UK economy.

VCTs are HMRC-endorsed and designed to reduce tax bills – whilst boosting the economy through early-stage investment in growth-focused UK companies. Making a VCT investment in the current UK climate has several benefits.

Firstly, some talented individuals have faced unemployment and will have renewed focus on going it alone and bringing their business idea to life. Valuations are also comparatively cheap in the aftermath of the global pandemic and the current cost of living crisis. Established companies spend less on R&D, allowing budding entrepreneurs to fill a void with new ideas and innovative services and products.

The Fortunate Position

VCTs put UK investors in a fortunate position to create a compelling addition to their modern, balanced, risk-managed portfolio. The UK government supports experienced investment in the types of companies elevated by VCTs, as they create jobs and support economic growth.

To compensate for the higher risk levels associated with VCTs, generous tax benefits are presented. These include a high annual allowance where you can invest up to £200,000 per tax year, up to 30% tax relief where you save up to £60,000 on income tax when investing in freshly issued VCT shares (provided they are held for a minimum of five years), tax-free dividends from ordinary shares in VCTs and no Capital Gains Tax from disposals of ordinary shares in VCTs.

A VCT should be held for a minimum of five years. If shares are sold before this, you will be required to repay HM Revenue & Customs (HMRC) any upfront income tax relief that you claimed.

As independent financial advisers Cheshire, we urge investors to look into the long term as well as seek professional advice around VCTs with an adviser. Our team can provide consultancy advice on investment, pension advice Manchester and more.

Contact the team at Haven IFA today for independent financial advisers Manchester on tax efficient investing.