Venture Capital Trusts were introduced in order to encourage individuals to invest in a variety of smaller companies with added risk, which are not listed on the Stock Exchange. The aim was to help these smaller companies with further development.
How They Work
VCTs pool together your investments, along with other individuals’ investments with the objective of spreading the risk over a range of small companies. Individuals can invest by purchasing shares from investors from an established trust or you can also subscribe to new shares. The tax relief obtained from these investments often play a big role in encouraging individuals to invest within these smaller companies.
- There is a 30% Income Tax relief on new ordinary shares each tax year on investments up to £200,000.
- There is no Income Tax to be paid on dividends received from ordinary shares.
- There is no Capital Gains Tax (CGT) to be paid from the gains of your investment.
In order to feel the benefit from income tax relief, you will have to of held shares in a Venture Capital trust for at least 5 years. As long as the VCT preserves its status, there is not a minimum period where you need to hold shares to obtain the relief from CGT.
Risk & Charges
It is important to be aware that your investment could go up or down in value. Although these smaller companies could offer higher returns, the investment could result in you getting back less than you put in due to the risk involved. Charges can often also be higher for VCTs compared to alternative investments.
The information provided should be treated solely as a guide and you should seek professional advice regarding your own personal circumstances and objectives.