What is a Venture Capital Trust (VCT)?
VCTs are listed companies that invest in a diversified portfolio of unquoted or AIM*-listed companies in the early stages of their growth.
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.
Is investing in VCTs a tax efficient way to save for retirement?
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.
What tax relief can I expect?
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.
What is the difference between a VCT and an Enterprise Investment Scheme (EIS)?
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 (a VCT is 5 years). However, it could take longer to exit an EIS as exits generally happen when the managers sell a company.
Who do VCTs invest in?
VCTs invest in small, early-stage companies and support them in their growth. While some businesses will fail, others may become household names.
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.