VCTs—introduction to regime and description of tax reliefs
VCTs—introduction to regime and description of tax reliefs

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

  • VCTs—introduction to regime and description of tax reliefs
  • Summary of VCT tax reliefs for individual investors
  • Investment income tax relief
  • Dividend tax relief
  • 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
  • Prospectus

FORTHCOMING CHANGE: the government intends to introduce a standard format for annual VCT returns that can be submitted electronically.

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 on an EU-regulated market (which includes the main market of the London Stock Exchange). 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