VCTs offer significant tax advantages over most investment products. In summary, the main tax reliefs for Qualifying Investors are:
- Income tax relief – investors can claim income tax relief when buying newly issued VCT shares, currently at the rate of 30% on investments of up to £200,000 per tax year. This relief is provided as a tax credit to set against an investors’ total income tax liability. Investors must hold shares in a VCT for at least five years to keep the income tax relief – if sold before then, this benefit is lost.
- Capital Gains Tax exemption – there is no capital gains tax on profits from selling VCT shares, no matter how short the holding period provided the VCT maintains its VCT status.
- Tax-free Dividends – if a VCT pays dividends, there is no tax to pay and investors will not need to declare them on their tax return.
Income tax relief is only available for set-off against any income tax liability due.
The above is only a very brief summary of the UK tax position of Qualifying Investors in VCTs and is based on the Company’s understanding of current law and practice. The tax treatment of Investors in VCTs will depend on their individual circumstances. Potential Investors are recommended to consult their own appropriate professional adviser as to the taxation consequences of their investing in a VCT.