Venture Capital Trusts (VCT)

Designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts. Spread the investment risk over a number of companies. Investors can subscribe for, or buy, shares in a VCT, which invests in trading companies, providing them with funds to help them develop and grow. VCT realise their investments and make new ones from time to time.

VCT must be prior approved from HMRC. Investments may entitle you to various Income Tax and Capital Gains Tax reliefs, and VCT are exempt from Corporation Tax on any gains arising on the disposal of their investments.

HMRC's approval of a VCT means that it currently satisfies their requirements enabling investors to qualify for certain tax reliefs. It does not guarantee the safety or success of any investments you make in a VCT.


Tax reliefs are only available to individuals aged 18 years or over and not to trustees, companies or others who invest in VCT.

1.       Income Tax reliefs

  • Exemption from Income Tax on dividends from ordinary shares in VCT (dividend relief).
    • 'Income Tax relief' at the rate of 30 per cent of the amount subscribed for shares issued. The shares must be new ordinary shares and must not carry any preferential rights or rights of redemption at any time in the period of five years beginning with their date of issue. You can get this relief for the tax year in which these 'eligible shares' were issued, provided that you subscribed for the shares on your own behalf, the shares were issued to you, and you hold them for at least five years.
    • The Income Tax relief at 30 per cent is available to be set against any Income Tax liability that is due, whether at the lower, basic or higher rate.

2.       Capital Gains Tax reliefs

You may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares. (This is called disposal relief.)

You can get two of the reliefs, dividend relief and Capital Gains Tax exemption, for both newly issued shares and second-hand shares acquired, for example, through the Stock Exchange. But Income Tax relief can be claimed only if you subscribe for new shares.


You can get Income Tax relief for a tax year if shares in VCT for which you subscribed up to a maximum of £200,000 are issued to you in the year.

In some cases you will not be entitled to Income Tax relief for a subscription for VCT shares.

Claiming Income Tax relief when investing in a VCT

Should claim the relief in the tax return for the year in which the shares were issued. Added bonus, you do not necessarily need to wait until you send in your tax return to get the benefit of the relief. You can do this once the shares which qualify for the relief have been issued to you by contacting your Tax Office.

Use a nominee to hold VCT shares?

Yes, but to get Income Tax relief you must have subscribed for them in your own name.

Ceiling £200,000 worth of shares in VCT

Dividend relief that you receive for ordinary shares in VCT (dividend relief), and Capital Gains Tax exemption on their subsequent disposal, are given only for shares you acquire up to the 'permitted maximum' of £200,000 in the tax year.

Selling shares in a VCT exempt from Capital Gains Tax?

There will be no chargeable gain (or allowable loss) for Capital Gains Tax purposes on selling ordinary shares in a VCT provided:

  • you acquired the shares within the permitted maximum for the tax year in question
  • the VCT was an approved as a VCT both when the shares were acquired and when they were sold, and
  • you are aged 18 or over when selling the shares

Sell VCT shares?

Because the ordinary shares of a VCT are listed in the Official List of the London Stock Exchange, you can sell them in the same way as any other listed investment.

Income Tax relief

If you sell or otherwise dispose of your shares within five years of them being issued to you, you will have to repay some or all of the Income Tax relief you get for the shares you dispose of. This does not apply if the disposal is a transfer between spouses.

If there has been a transfer between spouses of shares for which Income Tax relief was obtained, the recipient is treated in relation to any subsequent disposal or other event as though he or she had subscribed for the shares in the first place.


The company’s VCT invest in

If a company issues any of its shares or securities to a VCT, it must meet certain conditions if those shares or securities are to form part of the VCT's qualifying holdings These conditions concern both the type of company and the size and mix of investment. There are, for example, requirements as to the company's:

  • unquoted status
  • trading activities
  • gross assets
  • independence
  • subsidiaries

Unquoted status

The company must be unquoted for VCT purposes. This means that none of its shares, stocks, debentures or other securities can be listed on a recognised stock exchange.

Companies whose shares are dealt solely on the Alternative Investment Market (AIM) of the London Stock Exchange or on two of the Plus Markets are unquoted companies. Those trading on Plus Traded and Plus Quoted will be regarded as unquoted, those trading on Plus Listed will not, as this was designated a recognised stock exchange in July 2007. Shares or securities in a company which ceases to be unquoted can continue to be treated as being comprised in the VCT's qualifying holdings for the following five years.

Trading activities

The company must exist for the purpose of carrying on a 'qualifying trade' or be the parent company of a trading group whose business as a whole meets the scheme's rules. The relevant company must have a permanent establishment in the UK.

Most trades qualify, provided that they are conducted on a commercial basis with a view to making profits. A trade will not qualify if one or more excluded activities together make up a 'substantial part' of that trade. This will depend on the relevant facts and circumstances, but we generally consider that they do where they amount to more than 20 per cent of the trade. The main excluded activities are:

  • dealing in land, financial instruments, or in goods other than in an ordinary trade of retail or wholesale distribution
  • financial activities, property development, or providing legal or accountancy services
  • leasing or letting assets on hire, except in the case of certain ship-chartering activities
  • receiving royalties or licence fees, except where these arise from an intangible asset such as a patent or know-how, where most of it has been created by the company (or one of its subsidiaries)
  • farming, market gardening, or forestry
  • operating or managing hotels, guest houses, hostels, or nursing or residential care homes
  • providing services to another company in certain circumstances where the other company's trade consists to a substantial extent in excluded activities
  • shipbuilding, producing coal or steel

Gross assets

For investment of funds raised from 6 April 2006, the value of the company’s gross assets must not exceed:

  • £7 million immediately before the VCT makes its investment, and
  • £8 million immediately afterwards

If the company is a member of a group, the limits apply to the gross assets of the group, taken as a whole. This is known as the 'gross assets' rule


The company must not be controlled by:

  • another company, or
  • another company and a person connected with that company

Nor must there be any arrangements for such control. For this purpose a company controls another company if it directly or indirectly possesses, or is entitled to acquire:

  • more than 50 per cent of the company's share capital or issued share capital, or
  • more than 50 per cent of the voting power in the company, or
    • enough of the company's issued share capital to entitle it to more than 50 per cent of the company's income, if it were all distributed to the company's participators, or
    • more than 50 per cent of the assets of the company that are available for distribution to the company's participators on its winding-up

For this purpose all loans (except loans convertible into shares) and fixed-rate preference shares that do not carry voting rights are ignored.


A company in which a VCT invests may have subsidiaries providing that they meet certain conditions, which are outlined below.

In the case of each subsidiary, the company invested in must directly or indirectly own more than 50 per cent of the ordinary share capital of the subsidiary and the subsidiary must not be controlled by any person other than the company invested in or another of its subsidiaries. Additionally, any subsidiary whose business consists wholly or mainly of holding or managing land or property deriving its value from land must be at least 90 per cent owned directly by the company invested in. If the money invested in the company by the VCT is to be used by a subsidiary, then that subsidiary must be at least 90 per cent owned directly by the company invested in. The trading activity for which the money was raised may be transferred between such subsidiaries and the company invested in.

Other requirements

Other rules concerning the investment include rules relating to:

  • the maximum size of the investment in any particular company that can count towards the VCT qualifying holdings
  • how the money invested by the VCT is used and the period within which it must be used, and
  • the need for a minimum proportion of ordinary shares with no preferential rights to dividends or to the company's assets on its winding up, and no right to be redeemed, in the investment made by the VCT in any particular company

This guide provides an overview for companies and potential investorsIt does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.