Venture Capital Trusts

Venture Capital Trusts (VCTs) provide capital finance for small, expanding companies with the aim of making capital gains for investors as well as giving them tax-free dividends. Under changes announced in Budget 2004, the annual investment limit for VCTs has been doubled to £200,000, applying to shares bought by investors after 5 April 2004.

The rate of income tax relief for VCTs has also increased, from 20 per cent to 30 per cent, and this will apply to shares issued by VCTs in the tax year 2006/07 (40% for 2004/04 &2005/06). Investors who put £100,000 into a qualifying VCT could cut their income tax bills by up to £30,000.

Capital gains tax deferral relief is no longer available on investments in VCT shares made on or after 6 April 2004.

Example

Mr A has an income of £65,000 and invests £45,000 in a VCT share subscription in the 2006/2007 tax year.

Income tax
£

Income tax on £65,000
(say) 20,500

VCT relief (£45,000 at 30%)
(13,500)

Reduced tax liability
£7,000

VCT's must now be held for five years rather than the previous three years and individuals must be 18 years of age at issue.

There is no income tax on dividends, no CGT on VCT investments and no CGT on disposal.

A VCT could be an ideal long-term investment in many situations – for example, if you are seeking tax-free returns in the future or as a supplement to your pension income. Because VCTs invest in a number of companies, and because up to 30% of the investments can be in lower-risk areas, they are not as high risk as many investors might imagine.

To discover more about how you could take advantage of investing more tax-efficiently, please e-mail or contact us for further information.

The Financial Services Authority does not regulate taxation advice. Levels and bases of, and reliefs from, tax are subject to change. Because these investments may go down in value as well as up, you may not get back the full amount invested. Such investments may only be relevant to investors with particular tax liabilities and some could be regarded as higher risk.