venture capital trust

Are VCTs Something You Should Be Looking Into?



Posted on: 15th July 2022

If you are currently evaluating your investment portfolio or planning your estate, you will no doubt keep an eye on what the buzzwords are around the marketplace and try and figure them out. One of the big ones that have been banded about in 2022 is that of a Venture Capital Trust (VCT). If you don’t know what they are or how they can benefit you, independent financial advisers Cheshire are here to fill in the blanks.

What is a VCT?

VCTs are structured similarly to investment trusts, designed to encourage investment in small, young British companies.

By nature, these can be seen as riskier investments and may not suit everyone – however, with correct guidance from independent financial advisers Manchester can be very beneficial for tax and estate planning purposes. HMRC has strict rules that a company must meet to qualify when a VCT invests in them – particularly that the company carries out a qualifying trade, be small with assets of £15m or less and have less than 250 full-time employees. The company also needs to be under 7 years old unless it is a knowledge-intensive company such as healthcare or tech-based.

Tax Privileges

UK residents aged 18 and over can invest up to £200,000 every year in new VCT share issues and receive up to 30% relief on their income tax bill. Many investors choose to claim tax relief when filing their self-assessment tax return – but you can only claim tax relief for the year you invest.

To be able to keep the relief, you must hold the VCT for a minimum of 5 years. Any dividends or capital gains received from the VCT will also be tax-free. Many VCTs have automatic reinvestment schemes that allow for dividends to be used to buy more shares in them, but this is something you should discuss with your financial adviser to check that the shares are newly issued rather than bought in the market to ensure that the reinvested amount qualifies for 30% income tax relief as a fresh VCT subscription.

VCT shares bought on exchange do not get tax relief and have little to no liquidity. The same applies to selling your VCT (venture capital trust) shares, a financial adviser will help to point you in the direction of the best deal.

If you are holding a VCT over a minimum of 5 years, it may be worth looking into selling it and reinvesting in another one to benefit from the 30% tax relief.

If you are unsure about how VCTs can benefit you and want to know more, contact the team at Haven IFA to learn more.