Venture Capital Trusts (‘VCTs‘)
VCTs are public limited companies whose shares are listed on the London Stock Exchange or a European regulated market.
VCTs raise funds from the public markets to then invest in a portfolio of qualifying trading companies.
Strict and prescriptive rules apply as regards how VCTs can generate income, the types of investments that they can hold, the use of the sums invested and the age of the trading companies they can invest in (no more than seven years usually, or ten years for a ‘knowledge intensive company’). Funds cannot be returned to the investors in the VCT within three years from the issue of the shares.
Investors in a VCT can invest up to £200,000 in any one tax year and may qualify for income tax relief on 30% of the amount invested, provided that the VCT investment is held for a minimum of five years. Dividend relief may then be available on any dividends paid out by the VCT. Capital gains tax relief may be available on a disposal of the shares in the VCT. If the VCT loses its VCT qualifying status then these reliefs may be withdrawn. Strict rules apply as regards when an investor can dispose of the shares.
Strict rules also apply to prescribe when a company will qualify for a VCT investment, including with regard to the company’s balance sheet and number of employees.
There are limits on the amounts a trading company can receive in investment from a VCT, both during a rolling 12 month period and over its lifetime.