Venture Capital Trust (VCT) - Financial advisers, investment, wealth management and pensions advice - Ginkgo Financial Ltd
Higher risk investments

Venture Capital Trust (VCT)

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VENTURE CAPITAL TRUSTS (VCT) INVEST IN ASSETS THAT ARE HIGH RISK AND CAN BE DIFFICULT TO SELL SUCH AS SHARES IN UNLISTED COMPANIES.

THE VALUE OF THE INVESTMENT AND THE INCOME FROM IT CAN FALL AS WELL AS RISE AND INVESTORS MAY NOT GET BACK WHAT THEY ORIGINALLY INVESTED, EVEN TAKING INTO ACCOUNT THE TAX BENEFITS.
 

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VCTs invest in smaller, VCT-qualifying companies that are not listed on the main London Stock Exchange. Smaller companies have the potential to grow much faster than their larger, listed counterparts. By offering investors access to an instantly diversified portfolio
of smaller companies, established VCTs can offer exposure to this sector, whilst supporting British innovation. Always remember, however, that investing in small, VCT- qualifying companies is high risk and you may not get back the full amount you invest.

Risk

While VCTs carry a higher risk profile, they can be a useful addition to your investment portfolio if you are looking to complement existing pension plans or other long-term investments, such as Individual Savings Accounts (ISAs). Changes to pension rules have placed further restrictions on the amount you can invest into a personal pension, both annually and over your lifetime. This means that VCTs could become a valuable part of retirement planning if your pension limits are at risk of being breached. As with any investment, please ensure that you are comfortable with the associated key risks before making any investment decisions.

Additional income

The potential for tax-free dividends can provide supplementary income, which could be useful if you’re approaching, or are in, retirement.

Tax benefits

When you invest in new VCT shares, you’re entitled to a number of tax incentives on investments up to
£200,000 each tax year. These include:

  • Income tax relief – You can claim up to 30% upfront income tax relief on the amount you invest, provided you keep your VCT shares for at least five years. So if you invest £10,000 in a VCT, £3,000 can be taken off your income tax bill, although the amount of income tax claimed cannot exceed the amount of income tax due.
  • Tax-free capital gains – If you decide to sell your VCT shares and you make a profit, the proceeds won’t be liable for capital gains tax.
  • Tax-free dividends – If your VCT pays dividends, there is no tax to pay and you won’t need to declare them on your tax return.

 

REMINDER

You should never invest in a VCT solely for the tax benefits. Tax reliefs depend on the VCT maintaining its VCT-qualifying status. The tax benefits available to you will depend on your own personal circumstances and can change.