VCT Tax Breaks

ChesterDog

I know there are tax breaks available for investing in Venture Capital Trusts.

Do these apply only to direct investors buying into a new trust or buying into an issue of new shares in an existing one, or are they also applicable if simply buying market-traded shares in an existing VCT?

Thanks.

Jonbvn

http://www.hmrc.gov.uk/guidance/vct.htm

The VCT scheme started on 6 April 1995. It is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts.. So, if you invest in a VCT, you spread the investment risk over a number of companies.

Previously VCTs were companies listed on the London Stock Exchange, but from April 2011 VCTs are companies admitted to trading on a regulated market. A regulated market is one named as such by the EU, covering markets in EU and EEA countries. VCTs are similar to investment trusts. They are run by fund managers who are usually members of larger investment groups. Investors can subscribe for, or buy, shares in a VCT, which invests in trading companies, providing them with funds to help them develop and grow. VCTs realise their investments and make new ones from time to time.

VCTs must be approved by us for the purpose of the scheme. HMRC give their approval if they meet certain conditions. If you invest in them you may be entitled to various Income Tax and Capital Gains Tax reliefs, and VCTs are exempt from Corporation Tax on any gains arising on the disposal of their investments.

HMRC's approval of a VCT means that it currently satisfies their requirements enabling investors to qualify for certain tax reliefs. It does not guarantee the safety or success of any investments you make in a VCT. HMRC strongly advise you to get advice from a professional adviser before you decide whether or not to invest in a VCT.

bowlhead99

The income tax relief in the year you buy them is only in respect of new issues (and provided you hold them for long enough). You can't get it on buying existing shares which were already issued to someone else, as presumably that has the potential to result in the same pound invested into a small company being relieved against multiple people's incomes and ultimately over a long enough period the investment would have been entirely funded by HMRC!

The ability to receive dividends tax free as a high rate taxpayer, and take capital gains tax relief on gains made at disposal, are available to people buying new issues OR second-hand shares that were issued to someone else, as only one person will receive each dividend or phase of the gain.

For the full rules, minimum holding periods etc., you'll find this on the HMRC site, and likely all the VCT issuers' documentation (and some platforms' websites will highlight the salient points too)

ChesterDog

Thanks.

A persusal of the HMRC bumpf didn't make that logical point clear.

westy22

I have recently been looking at VCTs as I have maxed my SIPP and ISAs and so am considering some higher risk investments such as VCTs or Private Equity ITs.

It is holding the VCTs for 5 years (to keep the tax relief) that I have a bit of a problem with and wonder whether PE will give as good a return with more flexibility and possibly less risk.

pip895

I have recently invested in some "second hand" VCT's - basically because I was hitting my CGT limits in my non isa account.

If you pick well established ones (Baronsmead, Unicorn Aim etc.) I'm not sure they are that much more risky than SC OEIC's to be honest. They are certainly doing very well at the moment - like other small and micro cap investments - and the gains are tax free.
The only downside is that they are relatively expensive to purchase (Spread, Commission & Transfer Stamp etc.) - if you are looking to hold them long term this is less of an issue though.

MrMcTavish

May seem like a dumb question but ...
I am a business owner so pay is mainly divvies, with below income tax threshold salary.
I take it I could not invest in a new share issue VCT and claim the Income Tax Relief.
So will have to invest via my spouse who is paying income tax.

westy22

Doesn't have to be PAYE tax, just income tax. So if you are paying income tax on dividends above the BR band, buy to let income, pension income etc that that will still count.

Or, as you say, let your wife buy and claim relief.

MrMcTavish

Thanks - thought as much...