Venture Capital Trusts explained
What are VCTs? And what are the potential risks and benefits associated with investing in them?
VCTs are higher-risk investments designed for UK resident taxpayers with an investment time horizon of greater than 5 years, which is the minimum holding period to qualify for income tax relief. The value of investments can fall as well as rise and you may get back less than invested.
VCTs should only be considered by experienced investors once other financial planning solutions have been fully explored and should only form a small part of your portfolio.
Venture Capital Trusts (VCTs) explained
A VCT (Venture Capital Trust) is a type of Investment Company that invests in small UK businesses. Because the Government wants to encourage investment into these growing businesses, VCTs provide generous tax benefits. VCTs can potentially give you higher returns but they also come with extra risks, as the companies they invest in are more likely to fail than those listed on the London Stock Exchange.
The benefits of investing in VCTs
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30% income tax rebate on new investments up to £200,000 per tax year (if you have paid the amount of tax being rebated and hold the VCT for at least five years)
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Tax-free dividends
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No need to report VCT dividends to HMRC
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No capital gains tax on the sale of your shares
Tax treatment depends on individual circumstances and is subject to change.
The risks of investing in VCTs
- The value of VCTs, and any dividends derived from them, can fall to zero.
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VCTs can be illiquid and may be difficult to sell at a price close to the value of the underlying assets or at the time of your choosing.
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Investors should not rely on VCTs to provide an income.
You should only subscribe for new VCT shares based on the relevant prospectus available from the VCT’s own website and must carefully consider the risk warnings contained in that prospectus.
Our goal is to equip investors with information to support their independent decision-making. This should not be taken as advice or a recommendation. If you are uncertain about an investment's suitability or need advice tailored to your situation, we highly recommend seeking professional financial guidance.