Used up your pension & ISA allowance? Discover a tax efficient alternative in Venture Capital Trusts.
VCTs (Venture Capital Trusts) are a type of Investment Company that invests in small UK businesses. Because the Government wants to encourage investment into these growing businesses, VCTs provide several generous tax benefits. VCTs can potentially give you higher returns but they also come with extra risks, as the companies they invest in can be harder to sell.
While Venture Capital Trusts are a higher risk form of investment, the UK Government provides a number of appealing perks to individuals who invest in them. This includes getting a 30% income tax rebate on new investments up to £200,000 per tax year. It’s worth noting, however, that you must have held the investment for five years and have paid the correct taxes to redeem this perk.
Venture Capital Trusts are a great option for individuals looking to diversify their portfolio with tax efficient investments. VCTs are best for investors who are able to invest for a minimum of five years, as they expose investors to greater risk than some other investment products. If you have used your pension and ISA allowances, you may want to add VCTs to your investment portfolio.
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VCTs are listed companies that invest in a diversified portfolio of smaller and unquoted companies in the early stages of their growth. This includes companies who are AIM* listed.
The Government incentivises investing in early-stage firms as supporting an innovation-driven economy generates significant benefits including more jobs and wealth creation.
*The AIM (Alternative Investment Market) is a specialised unit of the London Stock Exchange (LSE) for smaller, more risky companies.
Its worth speaking to a financial services expert to find out if investing in VCTs is right for you.
It can be if you have used up your annual or lifetime pension allowances and annual Isa allowance.
VCTs can be particularly useful for higher earners whose annual pension allowance has been tapered back to between £4,000 and £40,000.
Why not schedule a call with one of BulbFin’s expert financial advisers. On that call, we will help you make an informed decision as to whether investing in VCTs is right for you.
You can currently claim up to 30% income tax relief on VCTs and the maximum annual investment you can claim tax relief on is £200K.
VCT shares must be held for a minimum of five years in order to permanently keep the tax relief.
There is no capital gains tax (CGT) to pay when you dispose of the VCT.
Tax reliefs depend on individual circumstances and may change in the future and being able to successfully claim tax reliefs depends on the VCT maintaining its VCT-qualifying status.
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The key differences between VCTs’ and EISs are the tax reliefs and investment approaches. It’s important to use the right one for your financial and tax planning needs.
Both have 30% income tax relief but with an EIS the minimum hold period is 3 years and a VCT is 5 years. However, it could take longer to exit an EIS as exits generally happen when the managers sell a company.
A VCT could be considered as part of a tax-efficient portfolio for retirement however it’s important to understand the risks before you decide to invest. The value of an investment and income from it can fall as well as rise and you may not get back the full amount you invest.
Talk to one of our experts and we will advise on whether investing in VCTs is right for you and your retirement planning.
There are various different types of VCT:
Generalist VCTs – the most popular as they invest in a wide range of companies at various stages of development, in all different sectors.
Specialist VCTs – tend to invest in companies within one specific sector.
AIM VCTs – invest into companies which are, or are about to be, listed on the AIM market.
Limited life VCTs – designed to be lower risk and aim to invest capital and then wind up and distribute assets to shareholders within five to seven years.
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