Venture Capital Trusts (VCTs)

Venture Capital Trusts are fully listed companies and their shares are traded on the London Stock Exchange. Nevertheless it is often difficult to re-sell VCT shares because, whilst they are listed, the market in them is commonly illiquid as there tend to be few buyers.

They are similar in structure to Investment Trusts. Primarily, they invest in small unquoted companies, or those listed on Aim, London Stock Exchange's market for growth companies, that engage in qualifying trades in the UK. The qualifying rules make a number of exclusions including property, financial services and commodities.

Investors are able to claim 30% income tax relief on an investment into a qualifying VCT up to an annual limit of £200,000 if they subscribe in cash for new shares and retain their shares for at least five years. In addition, in respect of subscriptions within this annual limit, any dividends paid by the VCT are tax-free and if held for five years and any uplift in the value of the shares is tax-free on disposal.

VCTs should, by their nature, be considered as high-risk investments.  VCT investments may be difficult to sell and should therefore be regarded as long term investments. The value of a VCT can go down as well as up so you may get back less than you originally invested, even taking into account the tax benefits.  These tax breaks can be withdrawn and you may be required to repay any tax relief which you have received. Therefore it is important that investors understand the risks associated with them.

VCT Analysis Service

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