VCTs - Tax treatment of Venture Capital Trusts

1. Tax Rebate/Relief against income tax

An individual who is a taxpayer will receive a tax-rebate of up to 30% on their investment. If you invest £10,000 (as in the illustrated example) you could either receive a cheque for £3,000 or an adjustment to the tax you pay but, since this is a rebate, it is restricted to the amount of tax that has been paid/is due in that same year. In practice, one can invest up to £200,000 per annum and the software will provide tax credits of up to £60,000 which will be set against an individual's tax liability for that same year. The screenshot, below, is taken from the Let's See screen (Detailed Info > Taxes).

In reality, shares must be held for 5 years in order to keep the rebate. Note, however, that the software will not reclaim the rebate if the VCT is liquidated prematurely.

2. CGT

When shares within a VCT are liquidated, any gain is exempt from Capital Gains Tax. This tax benefit of VCTs is not currently reflected by the software.

3. Tax-free dividends

Any dividends paid by the VCT will not attract income tax, provided the original investment was made within the permitted maximum of £200,000 per year.

4. VCT Deferral Relief

VCT Deferral Relief is not available for investments in shares issued after 5th April 2004 For any investments that are eligible for deferral relief, this will not be captured by the software.