VCTs—introduction, tax reliefs and returns
VCTs—introduction, tax reliefs and returns

The following Tax practice note provides comprehensive and up to date legal information covering:

  • VCTs—introduction, tax reliefs and returns
  • Summary of VCT tax reliefs for individual investors
  • EIS tax reliefs not available to VCT investors
  • Investment income tax relief
  • Conditions of investment income tax relief
  • Cap on unlimited income tax reliefs
  • How to claim and retain investment income tax relief
  • Dividend tax relief
  • Conditions for dividend tax relief
  • CGT exemption
    • More...

Like the enterprise investment scheme (EIS), the VCT regime is designed to encourage investment in smaller, higher-risk trading companies. A VCT is a company (not a trust), approved by HMRC, whose shares are admitted to trading in such a way that they meet the listing condition explained in Practice Note: VCTs—VCT conditions for HMRC approval—The listing condition.

Individuals can benefit from a range of tax reliefs, and spread their investment risk, by subscribing for (or buying) shares in a VCT, which, in turn, subscribes for newly issued shares or debt in unquoted companies (companies listed on AIM or PLUS markets (other than the PLUS-listed market) are unquoted for these purposes).

The VCT regime is prescriptive and sets out a number of requirements that must be met, including in relation to:

  1. •

    the VCT itself, which must be HMRC approved (see Practice Note: VCTs—VCT conditions for HMRC approval), and

  2. •

    the VCT's qualifying holdings in investee companies, which must meet certain conditions in relation to:

    1. ◦

      the shares or securities held in the investee company, the funds raised and the arrangements in general (see Practice Note: VCTs—qualifying holdings: conditions relating to shares or securities, funds raised and arrangements)

    2. ◦

      the investee company (see Practice Note: VCTs—qualifying holdings: investee companies), and

    3. ◦

      its qualifying trade (see Practice Note: VCTs—qualifying holdings: qualifying trades)

The income tax relief available to individuals upon investment in

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