Venture Capital Trust (VCT)
A Venture Capital Trust is a relatively risky type of collective investment fund that offers excellent tax breaks.
Similar to an investment trust a VCT is a company whose shares can be purchased on the stock market and whose business is to invest in other companies. VCTs however primarily invest in unquoted companies.
The companies that VCTs invest in are seen as high risk, high reward, fledgling companies that are looking for investment in their company to catapult them to greater success.
Because they invest in smaller companies the risk involved is much higher. However the government wants to encourage investors to back these potential stars of the future and so offers generous tax incentives for people to invest in them.
The tax advantages of investing in VCTs in the 2008/09 tax year are as follows:
- 30% of your initial investment back as a tax rebate
- The maximum tax rebate is subject to the amount of tax paid in the tax year by the investor
- Tax benefits are available on investments up to a maximum of £200,000 per tax year
- VCT shares must be held for 5 years in order for the tax breaks to remain valid
- The above tax incentives are only available when purchasing a new issue of shares in a VCT
- Purchasing shares in an existing VCT would not qualify for the above tax breaks
- Capital gains made on the sale of a VCT holding are free of capital gains tax
- Dividends earned from a VCT are free of income tax
Tax levels, bases or reliefs referred to are those currently applying but are subject to change. The tax treatment of investments will depend on the individual circumstances of the investor.
