Venture capital trusts income tax relief

Produced by Tolley
Venture capital trusts income tax relief

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Venture capital trusts income tax relief
  • Income tax relief
  • Qualifying conditions
  • Amount of income tax relief
  • Making a claim for tax relief
  • Cash flow advantage
  • Tax-free dividends
  • Capital gains tax exemption
  • Capital gains tax deferral
  • Claw back of income tax relief
  • More...

A venture capital trust (VCT) is a quoted company that invests in shares and securities issued by qualifying unquoted trading companies with a permanent establishment in the UK.

A subscription in eligible shares of a qualifying VCT is a tax efficient investment for the individual. He can benefit from the following tax reliefs:

  1. income tax relief of up to 30% on the amount invested

  2. income tax exemption for dividends from the VCT

  3. capital gains tax exemption on any gain on the sale of the VCT shares

These reliefs are considered in further detail below. The conditions for a valid investment (including the conditions which must be met by the VCT and the underlying qualifying unquoted companies) are discussed in the Venture capital trusts guidance note.

VCT may be attractive to investors who want to spread their risk by indirectly investing in a number of unquoted companies rather than investing direct in one company, as in the enterprise investment scheme. For more on that scheme, see the Enterprise investment scheme ― introduction guidance note.

Note that a sunset clause for VCT income tax relief has been introduced. This ensures that income tax relief will no longer be given to subscriptions made on or after 6 April 2025, unless the legislation is renewed by Treasury Order.

Income tax relief

Qualifying conditions

To obtain the income tax relief on investment in a VCT, the investor must meet all the following conditions:

  1. be over 18 years old when the shares are issued

  2. subscribing for shares on their own behalf (although from 17 July 2014, the shares can be held on behalf of the investor by a nominee), and

  3. the investment must be for genuine commercial reasons and not to avoid tax

ITA 2007, ss 261(1), (3), 330A

In relation to shares issued on or after 6 April 2014, income tax relief is restricted where the subscription for shares in the VCT is ‘linked’ to the sale of shares in the VCT. If the sale is linked,

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