Venture Capital Trusts

9th October 2019 | Personal Investments


A Venture Capital Trust (VCT) works in a similar way to a standard Investment Trust…

What is a Venture Capital Trust?

A Venture Capital Trust (VCT) works in a similar way to a standard Investment Trust in that it is a company that pools together money from a group of investors and uses this money to buy stakes in a variety of companies. However, a VCT invests in companies which are usually smaller, privately owned businesses rather than larger listed companies.

A VCT is a company whose shares trade on the London stock market. They are run by a fund manager and invest mainly in smaller companies that are not listed on the Stock Exchange. The small businesses are looking for investment to develop their business.

When you invest in a VCT you will hold shares in the VCT itself rather than in the actual businesses. You will receive a share certificate for the overall amount you have invested. In addition, you will receive a tax certificate that allow you to claim 30% tax relief from the HMRC.

How VCTs work

VCTs invest in small, newer businesses that may struggle in their early years and may not become successful. This makes VCTs a higher risk investment. However, VCTs invest in a range of companies and pool together money from several investors in order to reduce this risk.

VCTs also offer significant benefits. These include potentially higher returns than lower risk investments as well as considerable tax benefits.

Is a VCT right for me?

A VCT may be right for you if

  • You have a range of investments and want to use a VCT as part of a portfolio
  • You are happy to accept that you may not get back as much as you invested
  • You are looking for an investment that offers tax relief
  • You are seeking a higher return than those offered by low-risk investments
  • You are looking for diversification in your portfolio
  • You want to support British innovation and help economic growth

Tax Relief on VCTs

There are several tax benefits that come with investing in VCTs

  • When you buy newly issued VCTs you will receive Income Tax relief. This is currently 30% on investments up to £200,000 per tax year. Bear in mind that you have to hold the shares for a minimum of five years to receive Income Tax relief.
  • You won’t pay Capital Gains Tax on any profit you make from selling your VCT shares.
  • If your VCT pays dividends you do not have to pay tax on these.

VCTs offer an exciting way to diversify your portfolio and when used sensibly they offer many benefits. If you have any concerns about whether VCTs are right for you then you should speak to your independent financial advisor

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