Venture Capital Trust (VCT)
A listed investment trust investing in small UK companies. VCTs offer 20% income tax relief (for shares issued from 6 April 2026), tax-free dividends, and CGT-free disposal — but carry higher risk.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You buy VCT shares on the stock exchange. The VCT invests in small qualifying UK companies. You get 20% income tax relief — a £10,000 investment costs £8,000. Dividends are tax-free. After 5 years, sell CGT-free.
Tax Treatment
20% income tax relief upfront on shares issued from 6 April 2026 (30% before). Dividends are tax-free. No CGT on disposal. Must hold 5 years to keep relief. Cannot claim loss relief.
Tax Advantages
- 20% income tax relief — a £10,000 investment costs £8,000 (cut from 30% for shares issued on or after 6 April 2026)
- 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.
Worked Example: £20,000 into a VCT, held for five years
- 1You subscribe £20,000 for new VCT shares in 2026/27 and claim income tax relief at 20% — £4,000 — provided you paid at least that much income tax in the year, so your net outlay is £16,000.
- 2The VCT pays tax-free dividends of an assumed 5% a year: £1,000 a year, £5,000 over five years.
- 3After five years you sell for £18,000 (an assumed 10% fall in the share price, common as VCTs pay out capital as dividends).
- 4Cash back: £4,000 relief + £5,000 dividends + £18,000 sale = £27,000, against £20,000 invested, with no CGT.
Result: Even a falling share price can leave you ahead once relief and dividends are counted, but a steeper fall or dividend cuts change the picture quickly.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Dividends are tax-free with no holding period attached, and they are the main way VCTs return money.
- A VCT holds dozens of underlying companies, so one failure does far less damage than a single EIS investment.
- Shares are listed, so there is a visible price and a route to sell, and you can invest up to £200,000 a year.
Drawbacks
- Income tax relief on new shares fell from 30% to 20% for shares issued on or after 6 April 2026, cutting the cushion against losses.
- Sell within five years and the relief must be repaid in full.
- Buying VCT shares second-hand on the market gives tax-free dividends but no income tax relief.
- Charges are high compared with mainstream funds, and share prices often trade at a discount to asset value.
Notes for Limited Company Owners
Relief is set against your total income tax, so a director on a small salary with modest dividends may not have enough liability to absorb relief on a large subscription. Directors who declare a large dividend in one year sometimes pair it with a VCT subscription to offset part of the tax on it.
Common Mistakes
- Claiming relief that exceeds your actual income tax bill for the year — relief cannot refund tax you never paid.
- Selling shares in a VCT and subscribing for new shares in the same trust shortly afterwards; HMRC's rules can deny relief on the new shares.
- Assuming loss relief is available if the VCT falls in value — it is not, unlike EIS.
Who Should Avoid It
Anyone who does not pay enough income tax to use the relief, or who would need the money within five years; VCTs are for the top slice of a portfolio after ISAs and pensions are full.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
What if I sell before 5 years?
You must repay the income tax relief you claimed. 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 20% relief provides a cushion; the investment must fall more than 20% before you lose money in real terms.