Venture Capital Trust
What is a VCT company?
VCTs (Venture Capital Trusts) are investment companies that are listed on the London Stock Exchange and set up to invest in small UK businesses that meet certain criteria. To encourage support for these businesses the Government offers generous tax benefits for VCT investing.
What is EIS and VCT?
The EIS is designed to help these small companies raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. The VCT scheme spreads the investment risk over a number of companies since individuals invest indirectly in a range of small companies.
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What is SEIS or EIS?
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to help smaller trading companies raise finance, by offering attractive tax reliefs to investors who subscribe for new shares in these companies.
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Which is better EIS or VCT?
VCTs are more diversified than EISs as they typically invest in 30 to 70 companies. EIS investors can claim loss relief at their marginal rate of tax which, with the income tax break, provides some compensation for investment failures. This means that you are less likely to lose all of your initial investment.
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Can you claim SEIS and EIS?
You can claim SEIS and EIS income tax relief either online when you submit your Self Assessment tax return, or by post – using pages 3 and 4 of the SEIS3 or EIS3 certificates.
EIS tax relief at a glance
Income tax relief of up to 30%
A £100,000 investment could provide a £30,000 saving on that year’s income tax bill. To claim this, you must have sufficient income tax liability in the first place and hold the shares for at least three years.
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What are typical returns on VCTs?
Many VCT managers aim to generate yields in the region of 5% a year, which is equivalent to around 7% for a higher rate tax payer. In order to achieve a steady flow of dividends, VCT managers often structure investments in the underlying companies in a way that emphasises income generation
How does a VCT work?
A VCT works in a very similar way to a standard investment trust, one of the oldest forms of collective investment. A VCT is a listed company in its own right that pools together money from investors and uses it to buy stakes in VCT-qualifying, often privately owned companies.
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VCTs offer the following attractive tax reliefs: f 30% income tax relief on subscriptions up to £200,000 per tax year (as long as shares are held for at least five years). f Tax-free dividends. f Tax-free capital gains.
If you pass away within the first five years of investing, any income tax relief you have claimed doesn’t have to be repaid by your estate and any dividends and capital gains will remain tax-free.
Self Assessment Returns You can apply for tax relief by completing the Additional Information (SA101) form issued by HMRC, entering the total value of your VCT investment in the equivalent of Box 1 in the section titled ‘Other tax reliefs’
VCTs are higher risk products. It’s important to understand those risks before making any decision to invest. VCTs may not be suitable for all investors
For further information:
Venture Capital Trusts (VCTs) - Hargreaves Lansdown
https://www.hl.co.uk
https://octopusinvestments.com
VCM2035 - Venture Capital Schemes Manual: introduction to the Venture Capital Schemes: contacting HMRC the Venture Capital Reliefs Team by email