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Venture capital trusts

A venture capital trust (VCT) is an investment company broadly similar to an investment trust. It will be quoted on a regulated market and will have to invest at least 70% of its assets in companies that would qualify under the EIS, and must distribute most of its income by way of dividend.

It must be able to demonstrate a spread of investments: none can account for more than 15% of the value of its portfolio. There are other conditions for VCTs.

Individuals who subscribe for new ordinary shares in VCTs up to £200,000 per tax year, qualify for 30% income tax relief, provided the shares are held for at least 5 years. In addition, any dividend received by individuals aged at least eighteen in respect of ordinary shares in a VCT is exempt from income tax.

Gains accruing to individuals aged at least eighteen on the disposal of ordinary shares in VCTs are not chargeable gains, but equally, no capital gains tax relief is available for losses.

Changes to all three tax-advantaged schemes require that investments are required to satisfy the new ‘risk to capital’ test at the point of investment. This is described in more detail below under EIS schemes, as the issue is most likely to crop up there, where professional investment managers may not be involved.