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...

Conditions for CGT exemption
Identification of shares on disposal for purposes of CGT exemption
Applying VCT Annual Limit for purposes of dividend tax relief and CGT exemption
Meaning of ordinary shares and ordinary share capital
Corporation tax relief for VCT
Annual returns
Returns of amounts subscribed for eligible shares
Prospectus

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:

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