Venture capital trusts (VCTs) were established by the government in 1995 to support Britain’s exciting, entrepreneurial businesses. In the two decades since they were introduced they’ve helped to create jobs, reward innovation and bolster the UK economy. Recognising that VCTs involve risk, the government offer tax incentives to investors to encourage them to support smaller companies. These tax reliefs make VCTs a powerful planning tool.
The materials on this page are a good starting point for advisers who want to learn more about how VCTs work, what they invest in, and the benefits and risks. Check out our VCT 101 video below for more information about VCTs.
Investing in VCTs involves risk
The value of an investment, and any income from it can fall as well as rise and investors may not get back the full amount they invest. Further details of the risks can be found below.
Reasons to invest in a VCT
- VCTs invest in smaller, VCT-qualifying companies that have the potential to grow much faster than their larger listed counterparts, although they are high-risk investments.
- When clients invest in new VCT shares, they are entitled to claim a number of tax incentives on investments up to £200,000, these include:
- 30% upfront income tax relief on the amount invested (If a client invested £10,000 they could claim £3,000 off their income tax bill, although the amount of income tax relief claimed cannot exceed the tax due).
- Tax-free capital gains.
- Tax-free dividends.
- The tax-free dividends paid by a VCT can provide a supplementary income, which could be useful, especially if investors are approaching or in retirement.
- VCTs can help diversify an investor’s overall portfolio by giving them access to companies they might not normally have had access to.
- Investing in a VCT means investors can feel confident that they are helping innovative smaller companies to create jobs, prosperity and economic growth across the UK.
Risks to bear in mind
- The value of a VCT investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
- Tax treatment depends on individual circumstances and may change in the future.
- Tax reliefs depend on the VCT maintaining its qualifying status.
- A VCT is a long-term investment. Clients should be prepared to hold shares for a minimum of five years, or else pay back any income tax relief they claimed.
- VCT shares are by their nature high risk, their share price may be volatile and they may be hard to sell.
For further information, check out our guide to venture capital trusts. It’s a great way for clients to learn more about what VCTs can do for them.
What to expect from an Octopus VCT investment
For further information, please see our what to expect flyer. It’s a useful 1-pager you can show clients to help explain the journey when investing in one of our VCTs.
Got a question? Get in touch with our Business Development team on 0800 316 2067. We’re happy to answer any questions you may have.
Visit the VCT hub