Venture Capital Trusts (“VCT”) Print
VCTs are an extension of EIS whereby an individual invests in a number of EIS type companies, through the VCT, thus spreading the risk. The VCT itself is a quoted company, which has been approved for this purpose by HMRC.
The maximum investment qualifying for relief in any year is £200,000. This is in addition to any EIS relief which may be claimed.
VCT relief is given at the rate of 30% subject to the claimant having paid sufficient tax to cover this.
Investments into a VCT may not be used to defer capital gains.
Income tax relief will not be withdrawn if the shares are held for a minimum period of 5 years.
The gain on the disposal of shares held in a qualifying VCT is exempt from CGT regardless of the period of ownership. However, unlike EIS relief, where a VCT is disposed of at a loss, no CGT loss relief is available for offset against other gains.
Dividends paid by a VCT to an investor who obtains income tax relief on the investment are exempt from income tax in the investor’s hands. Similarly, a dividend paid by a VCT to an individual aged over 18 who is beneficially entitled to the dividend is not chargeable to income tax. This is subject to the provision that the shares on which the dividend is paid are not shares which were acquired in excess of the permitted maximum investment qualifying for VCT relief. In addition, the investor is required to make an enduring declaration.
Where two or more VCTs merge, the merging VCTs retain their VCT status provided the merger is carried out for bona fide commercial reasons and HMRC have been notified of, and approved the merger in advance of it taking place.
In the event of a VCT commencing winding-up, the Treasury regulations enable the VCT to retain its VCT status during all, or part of the period of winding-up. The period allowed is up to three years from the commencement of winding-up. However, this will not affect the withdrawal of income tax relief where the shares in the VCT have not been held for the minimum qualifying period prior to the commencement of the winding-up. The winding up of the VCT must be for genuine commercial reasons, and must not be for tax avoidance motives.