Venture Capital Trusts

What are the tax reliefs?

In April 2006 the Government altered the income tax relief to 30%. A VCT now offers the following generous tax reliefs:

Up front 30% income tax relief
On investments of up to £200,000 per tax year provided the shares are held for 5 years. For example:

Tax-free dividends
All dividends distributed by a VCT are free of income tax. VCTs pay no corporation tax or capital gains tax on realised investment gains and can distribute them following each realisation. When distributed, these capital profits will be paid as tax free dividends to shareholders.

VCTs are not obliged to adhere to a policy of distributing realised capital profits, and investors should take note of the existence, or absence, of any such commitment in the prospectus.

 Zero capital gains tax
Investors pay no capital gains tax when selling their VCT shares.

Shares bought in the secondary market
If shares in a VCT are bought through a stockbroker on the London Stock Exchange (i.e. not in the initial offer period), the initial 30% income tax relief will not apply. However, the investor will still receive tax free distributions and will not pay capital gains tax when selling the VCT shares.