What are the rules around VCTs?
Many investors are attracted by the VCT tax relief offered by these types of investments. The Government introduced VCT tax relief to encourage investors to support fledgling companies. Features of VCT tax relief include:
- 30% income tax relief upon investment
- Investment limited to £200,000 per tax year
- No capital gains tax on dividends
- Investment must be held for at least 5 years
In order to be eligible for VCT tax relief, you must invest in VCT shares upon its launch, not once it has already been established, but capital gains tax relief is available even if they have already been quoted on the stock market. The income tax relief can be paid as a lump sum, or as part of your salary, but if you withdraw your funds before five years then you will have to repay the tax. Additionally, if the VCT manager fails to invest at least 70% of funds in qualifying investments, the tax relief may be withdrawn and you will have to repay it.
Bear in mind that the Government reserves the right to change the level, basis and relief from taxation. Additionally, venture capital trusts offer a higher risk than other types of investment and the VCT tax relief should not be the only reason for investing.
Compare VCTs in the table below: