What Are Venture Capital Trusts

What Are Venture Capital Trusts – and Why Would I Need One?



Posted on: 6th June 2023

If you have vaguely passed by the financial sector or news insights, you may have heard the term Venture Capital Trusts (or VCTs) in the mouths of many independent financial advisers Cheshire, but are lost on what the term relates to. So what are Venture Capital Trusts? 

Don’t worry, we understand that not everyone is versed in the terminology to describe the many financial avenues set up to help people. That is why we are independent financial advisers Manchester after all – set up to advise and inform people without a knowledge of the financial markets.

When it comes to Venture Capital Trusts (VCTs from here on in), the term represents an exciting opportunity for many – especially those not averse to a bit of risk here and there.

The Nutshell

A VCT is a company that is listed on the London Stock Exchange, set up with the primary goal of making money by investing in other companies and reaping the rewards.

A VCT is similar to a standard investment trust in most ways, providing a way for individuals to invest and grow their capital significantly. However, it is done so with a higher risk than traditional investment funds. You may hear of it being referred to as a closed-end fund. VCTs are typically listed on the London Stock Exchange with the shares traded on the stock market.

As we mentioned, they are high-risk investments – yet an important part of the economic ecosystem of the UK. Alongside their high potential gains, they boast significant tax advantages that entice those prospective investors.

Who Do VCTs Invest In?

VCTs were established back in 1995, designed to generate investment into local private businesses that required financial backing to reach their full potential.

VCTs seek out promising, young and upcoming companies that they believe will flourish financially. A VCT manager often provides advice and guidance to these newbies to see them succeed. A VCTs investment manager specialises in the identification and investment into ground floor companies as a distinctive feature, but obviously, even experts cannot predict the outcome. Some businesses are destined to thrive and reward their investors with riches, whilst others will ultimately not reach their potential and fall. 

Tax Advantages

Whilst VCTs are more complicated than a traditional investment, there are certainly financial benefits for individuals that take big risks.

Whilst VCTs help keep the economy healthy by investing in new, emerging companies, some of the risks are offset by significant tax breaks for the investors. When investing in a VCT at the point of launch, 30% income tax relief can be claimed on the amount invested. That is applicable if you hold the investment for a minimum of five years and the trust maintains its VCT status.

Most investors claim VCT income tax relief when they file their tax returns. Depending on the timeframe of when you invest, this could result in a lower income tax bill or a refund if you have already paid the tax. You would also not require a declaration of any tax-free dividends you receive from the investments.

Understand the Risk

Of course, you need to understand the risks involved for your specific stance – so we recommend that you talk with the best independent financial advisers UK before diving straight in.

Contact the team at Haven IFA today for tailored financial advice that puts you in a better financial position.