A Venture Capital Trust (VCT) is a company approved by HMRC that invests in or lends money to, unlisted companies. Individuals may invest in a VCT: this may spread investment risk, as opposed to making a direct investment in an unlisted company.
A company can raise funds via VCT investment if it:
- Is unlisted.
- Has no more than £15 million in gross assets.
- Has less than 250 employees.
- There have not been more than seven years since its first commercial sale.
The maximum amount a company can raise in its lifetime from VCT investment is £12 million.
Tax relief Individuals
- Investment in shares in a VCT: shares must be retained for a minimum holding period of at least five years.
- Income Tax relief is given ‘front-end’ at 30% on an investment of up to £200,000 per year.
- Dividend income is exempt (and not reportable) from Income Tax.
- Gains on disposal are exempt from Capital Gains Tax (CGT).
- CGT deferral relief is not available.
- VCT holdings are not subject to Inheritance Tax (IHT) relief (unlike say shares invested in an AIM company or private company).
The investee company must:
- Have a permanent establishment in the UK.
- Carry on a qualifying trade.
- Plan to spend the investment on a qualifying trade.
- Is not listed on a recognised stock exchange at the time of investment.
- Is not controlled by another company.
Qualifying activities
The investee company must be engaged in a qualifying trading activity, including any research and development which will lead to a qualifying trade.
The activities of the company, or group (if it is a member of a group) must not consist to a substantial extent (more than 20%) of non-qualifying activities which include:
- Dealing in land, commodities or futures or in shares, securities or other financial instruments.
- Dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution.
- Banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities.
- Leasing (including letting ships on charter or other assets on hire).
- Receiving royalties or licence fees.
- Providing legal or accountancy services.
- Property development.
- Farming or market gardening.
- Holding, managing or occupying woodlands or any other forestry activities or timber production.
- Producing coal or steel.
- Operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment.
- Operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home.
- All energy-generating activities.
- Any activities which are excluded activities under ITA07/S199 (provision of services or facilities for another business).
Useful guides on this topic
A new company? Start here
This 'At a glance' freeview guide is essential reading for anyone thinking about starting up a new company.
EIS: Enterprise Investment Scheme (Subscriber guide)
When can EIS relief be claimed? What are the conditions for EIS relief? What are the benefits of EIS relief?
SEIS: Seed Enterprise Investment Scheme
When can SEIS relief be claimed? What are the conditions for SEIS relief? What are the benefits of SEIS relief?
Which investment relief: IR, ER, SEIS or EIS?
What is the difference between Entrepreneurs' Relief (ER) and Investors' Relief? How do they compare to investments in the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)?
EIS: Qualifying trades & activities
What is a qualifying trade or activity for Enterprise Investment Scheme (EIS) relief? Which trades do not qualify for relief? What are excluded activities?
