Venture Capital Trust (VCT)
A listed investment trust investing in small UK companies. VCTs offer 30% income tax relief, tax-free dividends, and CGT-free disposal — but carry higher risk.
How It Works
You buy VCT shares on the stock exchange. The VCT invests in small qualifying UK companies. You get 30% income tax relief — a £10,000 investment costs £7,000. Dividends are tax-free. After 5 years, sell CGT-free.
Tax Treatment
30% income tax relief upfront. Dividends are tax-free. No CGT on disposal. Must hold 5 years to keep relief. Cannot claim loss relief.
Tax Advantages
- 30% income tax relief — £10,000 investment costs £7,000
- All VCT dividends are completely tax-free
- No CGT when you sell VCT shares
- Can invest up to £200,000 per year
Who Is This Suitable For?
Higher rate taxpayers who have maximised ISA and pension allowances and are comfortable with higher risk.
Frequently Asked Questions
What if I sell before 5 years?▾
You must repay the 30% income tax relief. Dividends received remain tax-free and gains are still CGT-free.
Can I hold VCTs in an ISA?▾
No. VCT shares must be held outside an ISA. Since dividends and gains are already tax-free, there is no disadvantage.
How risky are VCTs?▾
High risk — investing in small companies. The 30% relief provides a cushion; the investment must fall over 30% before you lose money in real terms.