Venture Capital Trusts (VCT)
The Venture Capital Trust scheme started on 6 April 1995, and is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies, whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts (VCTs).
If you invest in a VCT, you spread the investment risk over a number of companies. These investments are in a higher risk bracket than ordinary investments into equities.
VCTs are companies listed on the London Stock Exchange, and are similar to investment trusts. They are run by fund managers who are usually members of larger investment groups. Investors can subscribe for, or buy, shares in a VCT, which invests in trading companies, providing them with funds to help them develop and grow.
VCTs must be approved by HMRC for the purpose of the scheme. Approval is granted if they meet certain conditions. If you invest in them you may be entitled to various income tax and capital gains tax reliefs, and VCTs are exempt from corporation tax on any gains arising on the disposal of their investments.
HMRC approval of a VCT means that it currently meets certain criteria, enabling investors to qualify for certain tax reliefs. It does not guarantee the safety or success of any investments you make in a VCT.
With effect from 6 April 2014, the VCT rules have been changed to exclude companies benefiting from renewables obligation certificates and / or the renewable heat incentive scheme. The regime has also been altered to exclude from qualifying for new tax relief those who are “conditionally linked in any way to a share buy-back or that have been made within six months of a disposal of shares in the same VCT.”
As part of the rules introduced in April 2014, HMRC will be able to withdraw the tax relief if VCT shares are disposed of within five years of their acquisition.
It is important to remember that these are long term, illiquid investments, which carry a high risk of loss of capital and, as such, are only likely to be suitable for sophisticated, wealthy investors as part of a diversified portfolio.