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 anyone looking 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 you invest in new VCT shares, you will be entitled to claim a number of tax incentives on investments up to £200,000, these include:
- Up to 30% income tax relief on the amount invested (If you invested £10,000 you could claim £3,000 off your 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 for investors who are approaching or in retirement.
- VCTs could help diversify your overall portfolio by giving you access to companies you might not normally have had access to.
- Investing in a VCT means you can feel confident that you 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. You may not get back the full amount you invest.
- Tax treatment depends on your 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. You should be prepared to hold shares for a minimum of five years, or else pay back any income tax relief you claim.
- VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
For further information, check out our guide to venture capital trusts. It’s a great way to learn more about what VCTs can do for you.
What to expect from an Octopus VCT investment
If you choose to invest in a VCT with Octopus, what would this look like? This video looks at what you could expect when you invest with us.
For further information, please see our what to expect flyer. It’s a useful 1-pager that helps explain the journey you take when investing in one of our VCTs.
Got a question about VCTs? We don’t offer financial or tax advice, but please email firstname.lastname@example.org or call us on 0800 316 2295 we’re always happy to hear from you.