FAQs

VCTs are very similar to investment trusts. Money raised from individual investors is pooled to acquire a portfolio of different investments - widening the investment landscape, spreading the risk.

• VCT Tax Reliefs

  Subscriptions for new shares in VCTs attract an Income Tax rebate of 30%. However, you can only reclaim tax that you have paid. Tax credits on dividends are NOT reclaimable. The VCT shares must be held for at least five years.

  Dividends paid by VCTs are not liable to any tax and any capital gain on selling the shares is not liable to CGT. These 'ISA type' reliefs apply to purchases of existing VCT shares as well as on subscriptions for new shares.

• How do you obtain tax relief?

  Each VCT will issue a certificate to subscribers, usually within a few weeks of the share allotment. This is used to claim the relief in conjunction with a Self Assessment form. If relief applies for the current tax year, write to your tax inspector and ask for a coding change.

  Why do most VCTs only have a provisional tax clearance?

  VCTs have three years in which to meet the qualifying provisions (e.g. minimum of 70% investment in qualifying securities). During that time the Inland Revenue will grant provisional relief subject to the conditions actually being met. No VCT has yet failed to meet the requirements.

• Why do some issues close before the stated date and some much later?

  Each VCT share issue is of a finite size (apart from some very limited flexibility to increase it). The closing dates are usually just indicative - if the offer is fully subscribed before then the offer will close.

  If there is still capacity at the closing date it will often be extended so long as the prospectus is still valid. Popular issues can close much earlier than planned, so keep a look out for the level of funding obtained (it is shown on our fact sheet page and list of offers). Remember the last half usually goes much quicker than the first!

• Why is the share allotment date important?

  This is the crucial date for setting the tax year in which Income Tax relief is being claimed. If you are in a hurry to meet a deadline, check out when your chosen VCT next plans to make an allotment - some will do it on demand.

• What is the annual limit for subscriptions to VCTs?

  £200,000 in any single tax year.

  Is there any limit on the value of VCT shares I can buy on the Stockmarket?

  Yes. The annual limit of £200,000 in each tax year applies to the combined total of new VCT share subscriptions and market purchases.

  Do reinvested dividends count towards the £200,000 limit?

  Yes.

• How much is it prudent to invest?

  If you have a large income you might be tempted by the generous tax reliefs to invest the maximum permitted under the rules. We suggest that the right approach is to consider first how much of your investable assets should be committed to UK smaller companies (we would suggest no more than 25%), then use VCTs to provide part of that exposure.

  Don't let tax relief overrule common sense!

• How risky are VCTs?

  After three years a typical VCT portfolio will consist of 80% in small UK companies and 20% in fixed interest securities. Provided the venture capital portfolio is adequately diversified (at least 20 holdings) then it is difficult to see that VCTs should be regarded as high risk investments. In fact we would place them in a lower risk category than some specialist investment trusts and only a little riskier than some smaller companies unit trusts.

  However, you should be aware that the liquidity in VCT shares can be restricted and dealing spreads may be wide. You should not invest unless you are prepared to hold for the long term and can afford to risk making a loss.

• Are VCT shares subject to Inheritance Tax?

  Yes - they are fully listed shares and so treated in the same way as other equities. In other words there are no IHT benefits from investing in VCTs.

• Can dividends be reinvested?

  It depends on whether the VCT offers this facility, it will usually be stated in the prospectus.

  Do reinvested dividends count towards the £200,000 limit?

  Yes

• Should I sell my VCT shares after the three/five year qualifying period?

  If you subscribed before April 5th 2004 and deferred a capital gain, probably not. You will recrystallise any capital gain that was deferred and you will lose the ongoing VCT tax benefits. We think that most VCT portfolios take at least three years to mature and so it makes little sense to sell after three years and reinvest in a brand new VCT unless you are dissatisfied with the performance.

  If you invested after April 5th 2004 there should be no tax disincentive to sell, except the loss of the ongoing 'ISA style' reliefs. The decision on whether or not to sell should be based on the availability of alternative investments and the terms on which a sale can be achieved.

• How can you sell VCT shares?

  Although VCT shares are fully listed on the London Stock Exchange there is very little buying and selling because most shareholders face a tax penalty by selling. Accordingly, very few shares are actually traded. Dealing spreads are often wide and there is only one marketmaker for some shares.

  Most VCTs have powers to repurchase shares in the event of a large seller or an excessive discount arising. Some VCT managers have been much better than others at 'managing the discount'.