VCM50010 - VCT: overview of the VCT scheme
A Venture Capital Trust (‘VCT’) is a company, broadly similar to an investment trust, which has been approved by HMRC and which subscribes for shares in, or lends money to, small unquoted companies. Under the VCT scheme, VCTs and their investors enjoy certain tax reliefs (summarised below).
The content in this manual covers a much higher level of detail compared to say a Helpsheet supporting the Self Assessment Return. If you are looking for an introduction to the main rules for these reliefs for a particular year then search for HS298 on gov.uk and select the year you are considering.
The VCT scheme is designed to encourage investment in small unquoted companies. Individuals invest by holding shares in a VCT. The VCT invests in a spread of small unquoted companies, enabling investors to spread their risk, just as they do by holding shares in an ordinary investment trust company.
An approved VCT has a number of tax advantages:
- The VCT is itself exempt from CT on chargeable gains (and losses for chargeable gains purposes are not allowable losses).
- individual investors can claim ‘front-end’ income tax relief on subscriptions of up to £200,000 (VCM51020+),
- individual investors are exempt from income tax on dividends in respect of ordinary shares acquired within the ‘permitted maximum’ of £200,000 (VCM51200), and
- individual investors are exempt from CGT on the disposal of ordinary shares acquired within the ‘permitted maximum’ of £200,000 (VCM52000+).
Investors obtain ‘front-end’ income tax relief by submitting claims to their own HMRC office, either as part of their SA tax return, or separately (VCM51030).
Legislation
The VCT scheme was introduced by legislation in FA95/S70 to S73 and FA95/SCH14 to 16. The current legislation is at:
- ITA07/Part 6 Chapters 1 to 6,
- TCGA92/S100, TCGA92/S151A - B, and
- TCGA92/SCH5C.
This is supported by:
- The VCT Regulations 1995 (SI1995/1979),
- The VCT (Amendment) Regulations 1999 (SI1999/819),
- The VCT (Exchange of Shares and Securities) Regulations 2002, and
- The VCT (Winding up and Mergers)(Tax) Regulations 2004