Planning for medical professionals
It’s increasingly difficult for high-earning National Health Service (NHS) professionals to make more contributions to their generous salary-linked NHS pension schemes. With relatively high and steady incomes, many are now looking for alternative ways to invest for the future.
This tax-planning scenario explains how medical professionals could use a Venture Capital Trust (VCT) to offset income tax on their various income streams.
Build appropriate strategies for your clients
This scenario might be useful for clients who:
- are in the medical profession
- are thinking about retirement
- don’t need immediate access to the money in their pension
- are looking for tax-efficient ways to invest for the future
Things to keep in mind
- Nothing in this scenario should be viewed as advice.
- Any suitability decisions should be based on a client’s objectives and needs, as well as their attitude and capacity for risk.
- You should consider the value, eligibility and timings of tax reliefs and liabilities.
- You should consider the impact of relevant product charges (including initial and ongoing) like administration fees and annual management charges.
Andrea needs a tax-efficient way to invest additional income
Andrea, 59, is a successful surgeon and an additional rate tax payer who is on the salary-linked NHS pension scheme. She has started to draw down some of her pension each year and, at the same time, is also earning a high salary. Since the addition of her pension income, her level of disposable income has increased significantly.
As she is restricted in what she can pay into her pension, she is looking for other tax-efficient options
to invest this additional income. She would consider investing in UK smaller companies and is comfortable with the associated investment risk.
Andrea’s financial adviser suggests investing in a VCT
Andrea talks to her financial adviser, who makes an assessment based on her risk profile, investment time horizon (of more than five years) and attitude towards smaller company investing. Given this, her adviser suggests investing £50,000 of her annual income in a VCT each year.
In order to keep the upfront income tax relief claimed, VCT shares must be held for at least five years (should Andrea sell the shares before then, she’d have to repay the tax relief to HMRC). However, after five years, Andrea could sell her first VCT investment, then reinvest any sales proceeds in another VCT and use the additional income tax relief to reduce her year six income tax bill. Similarly, Andrea’s year two VCT investment could be sold and reinvested in another VCT in year seven, giving her additional income tax relief, and so on.
Risks to remember when investing in a VCT
- VCTs aren’t suitable for everyone. They’re high risk and should be considered as long-term investments. The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest.
- Tax treatment depends on individual circumstances and tax rules can change in the future. Tax reliefs also depend on the VCT maintaining its qualifying status. Tax relief is available on investments of up to £200,000 per year.
- 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.
An overview of VCTs
VCTs were first introduced in 1995 and they’ve grown in popularity since. They could be a good fit for investors who:
- already have personal pensions and Individual Savings Accounts (ISAs)
- are comfortable with higher risk investments
VCTs are high risk and different to pensions and ISAs. A VCT isn’t likely to be suitable for investors who:
- need guaranteed income
- can’t tolerate loss
- want to keep immediate access to their money
Tax benefits of investing in a VCT
This flow chart shows how Andrea can claim income tax relief from each VCT investment she makes across several consecutive tax years. We’ve used six years as an example but in practice she could use this method to keep claiming income tax relief indefinitely. This is, of course, subject to certain conditions including the requirement to hold VCT shares for at least five years in order to retain the 20% upfront tax relief. VCTs are high risk and are not suitable for everyone. If an investor needs guaranteed income, cannot tolerate loss or is uncomfortable losing immediate access to their money, then VCTs are not suitable.
Note: Tax rates and allowances are correct for the tax year 6 April 2026 – 5 April 2027. For purposes of this illustrative example, we have assumed no gain or loss on investments, and it does not take into account any initial fees or ongoing charges that will be incurred. VCTs are high risk and inherently different from pensions and ISAs. When clients choose to sell VCT shares, they are often sold at a small discount to the value of their underlying net asset value, so the impact of this should also be considered when assessing any specific products. Please note, after selling shares in a VCT, it is not possible to claim tax relief on new shares bought in the same VCT within six months of the initial sale.
Interested in VCTs?
We’re the largest provider of VCTs in the market, offering three types of
investments that can provide attractive tax reliefs.
Octopus AIM VCTs
closed
Two VCTs featuring established portfolios of around 80 AIM-listed companies with growth potential.
Octopus Apollo VCT
open
A portfolio of around 45 established smaller companies which targets commercialised businesses looking to scale.
Octopus Titan VCT
closed
The UK’s largest VCT invests in a portfolio of over 140 early-stage companies with the potential for high growth.
About Octopus
We’re a financial services provider with a difference. Our main goal is to help people plan for their financial future, so we’ve built market-leading positions in tax-efficient investment, smaller company financing, renewable energy and healthcare.
Related VCT resources
Venture Capital Trusts Explained
Learn how VCTs function, the types of early-stage companies they invest in, and the tax benefits and risks involved.
How to claim VCT tax relief
Learn how to claim up to 20% income tax relief on Venture Capital Trust (VCT) investments and enhance your understanding to support your clients’ investment decisions.
VCT FAQs
Our easy-to-read guide answers common questions about Venture Capital Trusts (VCTs), designed to help you understand VCTs better and assist your clients with confidence.