Venture Capital Trusts (VCTs)

What is a Venture Capital Trust (VCT)?

A VCT is a tax-efficient investment company listed on the London Stock Exchange. VCTs were introduced by the Government in 1995 to stimulate investment in smaller UK companies and now have assets of over £6 billion invested. Investors are rewarded with income tax relief and tax-free dividends. Watch the video below to find out more.

 

Who could benefit from VCT investing?

An individual who:

• Has a medium to long-term investment horizon and accepts the increased risk profile
• Wants to reduce their income tax liability
• Would like to withdraw excess cash held in their business, tax efficiently
• Is an investment bond holder who wants to exit, but is worried about facing a tax charge on encashment
• May be restricted on their annual pension contributions, but wants to continue to plan for retirement
• Is a non-domiciled individual wishing to remit overseas income and gains to the UK, tax-efficiently
• Is a landlord interested in offsetting tax on rental income
• Is already retired but may want to extract capital from their pension in a tax efficient manner
• Would like some exposure / diversification to venture capital investments in their portfolio
• Would like to generate a potential supplementary tax-efficient income stream

How do you invest in a VCT?

 

 

More benefits include...

Growth Potential: Help smaller companies to generate wealth and contribute to the UK’s economic growth. Smaller UK businesses can offer potential for substantial long-term growth if they are successful.

Diversifying Your Portfolio: Smaller unquoted companies typically follow different investment cycles from other parts of the market, so a VCT can bring extra diversification to your investment portfolio.

Investment Opportunities: VCTs are considered a higher risk investment; however, portfolios will differ in their investment focus.

Disclosures and Transparency: VCTs are public companies listed on the LSE. They abide by regulatory and governance standards that require greater transparency and disclosures to investors than other tax-efficient investment schemes such as Enterprise Investment Schemes (EIS).

A Different Type of Long-Term Investment: Complement your pension and ISA portfolio with a tax-efficient investment with a higher annual contribution of £200k.

The Risks

Tax Rules: Tax rules are subject to change and tax treatment is dependent on investors' individual circumstances.

Income Tax Relief Clawback: If you sell your shares early you will lose the income tax relief. Any upfront income tax relief received will need to be repaid to HMRC.

VCT Qualifying Status: Tax reliefs are dependent on the VCT maintaining qualifying status. If a VCT loses qualifying status, tax advantages are withdrawn at that point.

Investee Company Risk: VCTs invest in small unquoted companies which is inherently risky; these companies may not perform as hoped and in some circumstances may fail completely.

Capital is at Risk: Capital is at risk and you many lose all the money invested. The value of shares and any income from them may go down as well as up.

Longer Term Investment: VCTs should be considered longer term investments and may be more difficult to realise than other securities listed on the London Stock Exchange.

Liquidity Risk: The secondary market for shares in VCTs is limited and as a result the shares usually trade at a discount to net asset value.

Foresight has three VCT strategies

Each strategy is designed to help investors meet different investment goals.

Click on the links below to find out more about each VCT.

Client Planning Scenarios

Our planning scenarios illustrate how tax-efficient investments can be used to address the diverse needs of clients. To see the rest of our client scenarios, click here to visit our literature library.