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Investor Overview

VCT Explained: Everything You Need to Know

A Venture Capital Trust (VCT) is a tax-efficient investment scheme in the UK designed to encourage investment in small, unlisted companies.

VCTs provide investors with a way to support growing businesses while enjoying attractive tax advantages, making them a popular choice for those looking to diversify their investment portfolios.

 

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What is a VCT?

One of the UK's Most Popular Tax-Efficient Investments

The Venture Capital Trust (VCT) scheme was introduced in the UK in 1995 to stimulate investment in smaller, unlisted companies and support the growth of innovative businesses. Since its inception, VCTs have attracted substantial investment, providing individuals with the opportunity to invest in high-potential startups while enjoying significant tax advantages.

The primary appeal of VCTs lies in their generous tax reliefs. Investors can claim up to 30% income tax relief on investments of up to £200,000 per tax year (2024/25), along with tax-free dividends and capital gains. This combination of benefits makes VCTs an attractive option for those looking to diversify their investment portfolios while supporting the UK’s entrepreneurial landscape. As a result, VCTs have become a popular choice for investors seeking both financial returns and the opportunity to back emerging businesses.

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01 | Significant Tax Relief

Investors in VCTs can claim up to 30% income tax relief on investments of up to £200,000 per tax year. This relief is available as long as the shares are held for at least five years, providing a substantial incentive for investing in smaller companies.

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02 | Tax-Free Dividends

Dividends received from VCTs are tax-free, meaning investors can enjoy their returns without paying income tax, making VCTs an appealing option for income-focused investors.

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03 | Capital Gains Tax Exemption

Any gains made from the sale of VCT shares are exempt from Capital Gains Tax (CGT), allowing investors to benefit fully from any increase in the value of their investment without additional tax liabilities.

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04 | Supporting Innovative Businesses

Investing in VCTs allows individuals to support early-stage and growing companies across various sectors, contributing to the UK’s entrepreneurial ecosystem while potentially reaping financial rewards.

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05 | Portfolio Diversification

VCTs offer exposure to a diverse range of small companies, which can enhance portfolio diversification. This can help mitigate risks associated with investing in individual stocks or sectors.

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06 | No Inheritance Tax (IHT)

Shares held in VCTs can be passed on free from inheritance tax, provided they have been held for at least two years. This feature makes VCTs an attractive option for estate planning.

Minimise Risk. Maximise Returns.

The GCV Portfolio

Our Most Recent Tax-efficient Investment Opportunities

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Key Facts

Benefits and Risks of VCT Investments

Venture Capital Trusts (VCTs) offer a compelling array of tax-efficient benefits for investors looking to support innovative businesses while potentially earning substantial returns. With features such as up to 30% income tax relief, tax-free dividends, and capital gains tax exemption, VCTs provide an attractive investment avenue for those seeking to diversify their portfolios and engage with the UK’s startup landscape.

However, as with any investment, it’s crucial to consider the associated risks and limitations of VCTs. These include the potential for capital loss, as investments in smaller companies can be more volatile and riskier compared to established firms. Additionally, VCTs require investors to commit their capital for a minimum of five years to fully benefit from the tax reliefs. Balancing these benefits and risks is essential for making informed investment decisions that align with your financial goals and risk tolerance.

01
Minimum Holding Period For VCTs

To qualify for the associated tax reliefs, VCT shares must be held for a minimum of five years. This lock-in period may limit liquidity for investors who may need access to their capital sooner.

02
Professional Management

VCTs are managed by professional investment teams that specialise in identifying and supporting promising early-stage companies. This expertise can enhance the chances of success for investors who may not have the time or knowledge to manage such investments directly.

03
Supporting Growth-Focused Businesses

VCTs primarily invest in small, unlisted companies, providing investors with the chance to support innovative businesses and contribute to the UK’s entrepreneurial landscape while potentially earning financial returns.

04
Tax-Efficient Investment Type

Investors in VCTs can claim up to 30% income tax relief on investments of up to £200,000 per tax year (2024/25). This relief enhances the overall return on investment and is particularly attractive for higher-rate taxpayers.

05
Limited Historical Performance Data

VCTs can vary significantly in performance due to the nature of the underlying companies. As such, past performance may not be indicative of future results, making it essential for investors to conduct thorough research.

06
Risk Of Capital Gains Loss

Investing in smaller, unlisted companies can be more volatile and carries a higher risk of capital loss compared to more established investments. Investors should be prepared for fluctuations in value.

07
Access to Alternative Investments Through VCTs

VCTs are classified as alternative investments, providing opportunities that may be less correlated with traditional stock market performance, thus offering potential benefits during market volatility.

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Free Investor Guide

An investor's guide to tax efficient investing

Providing an insight into the tax efficient investment options accessible to UK investors, our free guide is a useful introduction to the schemes and wrappers that can help you maximise returns and savings while minimising risk when investing into early stage companies.
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VCT FAQs

Key Questions

Should you have any further queries surrounding VCT Investments (Venture Capital Trusts), we have compiled a list of frequently asked questions below.

  • A Venture Capital Trust (VCT) is a publicly listed company in the UK designed to encourage investment in small, high-risk businesses. By investing in a VCT, individuals can gain access to these companies while benefiting from certain tax reliefs.

  • Investors in VCTs can receive up to 30% income tax relief on the amount invested, provided they hold the shares for at least five years. In addition, any dividends received are tax-free, and there is no Capital Gains Tax (CGT) on the sale of VCT shares.

  • The maximum you can invest in VCTs per tax year is £200,000. This is the amount eligible for income tax relief and applies across all VCTs combined.

  • VCTs are generally suitable for experienced investors with a higher risk tolerance. Due to the nature of the investments in smaller, unlisted companies, VCTs carry a higher risk compared to traditional investment options.

  • Yes, you can sell your VCT shares at any time; however, to retain the income tax relief, you must hold the shares for at least five years. Selling before this period may result in the need to repay the tax relief claimed.

  • VCTs invest in small, early-stage, or expanding companies in the UK. These companies often operate in sectors such as technology, renewable energy, healthcare, and more, providing capital to businesses that might struggle to obtain traditional financing.

  • VCTs are high-risk investments. The value of VCT shares can fluctuate significantly, and there is a risk of losing the entire capital invested. Additionally, the liquidity of VCT shares may be lower than that of larger, listed companies.

  • No, VCT dividends are not guaranteed. Dividends depend on the performance of the companies within the VCT's portfolio and can vary or even be suspended if the underlying investments do not perform as expected.

  • VCT shares can be transferred to another person; however, such a transfer is treated as a disposal for tax purposes. The recipient will not be eligible for the initial income tax relief, and you may be liable for tax on any gains.

  • VCTs are not covered by the FSCS for losses related to investment performance. However, they may be covered if the VCT provider fails or if there is a mismanagement of funds.

  • Yes, you can invest in multiple VCTs in a single tax year, as long as your total investment does not exceed the annual limit of £200,000. This can help diversify your exposure to different sectors and companies.

  • After investing in a VCT, you will receive a certificate from the VCT provider. You can use this certificate to claim income tax relief through your self-assessment tax return or by adjusting your PAYE tax code.

  • Some VCTs offer dividend reinvestment schemes (DRIS), allowing you to use dividends to purchase additional shares in the VCT, potentially increasing your investment over time.

  • If you sell your VCT shares at a loss, the loss cannot be used to offset gains from other investments. However, you would not need to repay any tax relief already claimed if the shares were held for at least five years.

  • Investing in a VCT does not impact your ISA or pension allowances. However, the amount invested in VCTs and the corresponding tax relief should be considered as part of your overall tax planning and investment strategy.

Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.

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Delivering Impact.

Backed by

Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.