Venture Capital Trusts (VCTs)

How VCTs Offer Tax-Free Income

A Venture Capital Trust is a publicly listed company that invests in a portfolio of small, early-stage UK businesses. By investing in VCT shares, you gain exposure to these companies while receiving generous tax reliefs.^[1]

Tax Reliefs

VCTs offer three main tax benefits:^[1]

30% Income Tax Relief

Claim 30% Income Tax relief on investments of up to £200,000 per tax year in new VCT shares. Invest £10,000 and reduce your tax bill by £3,000. You must hold the shares for at least 5 years.

Tax-Free Dividends

All dividends from VCT shares are tax-free, regardless of how much you receive. This is outside the normal dividend allowance.^[2]

Tax-Free Capital Gains

Any gain when you sell VCT shares is exempt from CGT. However, you cannot claim loss relief if the shares fall in value.^[3]

EIS vs VCT

Feature	EIS	VCT
Income Tax relief	30%	30%
Min holding period	3 years	5 years
Annual limit	£1m (£2m)	£200,000
CGT on gains	Exempt	Exempt
Loss relief	Yes	No
CGT deferral	Yes	No
Tax-free dividends	No	Yes
Diversification	Single company	Portfolio

New Shares Only

The 30% Income Tax relief is only available on newly issued VCT shares (bought during a fundraising offer). If you buy existing shares on the stock market, you get the dividend and CGT exemptions but not the 30% Income Tax relief.^[1]

How to Claim

The VCT manager sends you a tax certificate. Claim the 30% Income Tax relief on your Self Assessment return, or ask HMRC to adjust your tax code if you’re employed.^[4] If you file Self Assessment, you can enter the relief when you complete your return online.

Risks to Consider

VCTs invest in small, early-stage companies — risk of capital loss is real
VCT shares can be illiquid — the share price may trade at a discount to net asset value
Selling before 5 years means Income Tax relief is clawed back
Past performance is not a reliable indicator of future results

Frequently Asked Questions

What tax relief do you get from investing in a VCT?

You can claim 30% Income Tax relief on investments of up to £200,000 per year in new VCT shares. All dividends from VCT shares are tax-free, and any gains when you sell are exempt from Capital Gains Tax.

How long must I hold VCT shares to keep the tax relief?

You must hold the VCT shares for at least 5 years. If you sell before 5 years, the 30% Income Tax relief is clawed back.

Can I claim loss relief on VCT shares?

No. While gains on VCT shares are exempt from CGT, you cannot claim loss relief if the shares fall in value. This differs from EIS shares, where loss relief is available.

Do I get Income Tax relief on VCT shares bought on the stock market?

No. The 30% Income Tax relief is only available on newly issued VCT shares purchased during a fundraising offer. Second-hand shares bought on the market still qualify for tax-free dividends and CGT exemption.

Sources

Venture Capital Trusts: tax relief for investors — GOV.UK
Tax on dividends — GOV.UK
Capital Gains Tax: reliefs — GOV.UK
Self Assessment: claim tax relief — GOV.UK