Venture Capital Trusts (VCTS)

‘Front end' income tax relief

From 6 April 2006, investors aged 18 or over who ‘subscribe' for new ordinary shares in VCTs are currently entitled to income tax relief on subscriptions up to the ‘permitted maximum' of £200,000 for each tax year.

Income tax relief is given for the year of assessment in which the shares are issued by the VCT and is the smaller of:

• an amount equal to tax at 30% on amounts subscribed within the ‘permitted maximum', and
• the amount which reduces the individual's income tax liability to nil.

The amount of income tax relief is calculated using the rate of 30% whether the individual has a higher rate income tax liability for that year of assessment or not.

VCT dividends exemption

VCT investors are exempt from income tax on dividends in respect of both new and ‘second hand' shares ‘acquired' within the ‘permitted maximum'. Investors who receive the exempt dividends do not have to show them on their self assessment tax returns. Unfortunately, the 10% tax credit is non-reclaimable. However, for higher rate taxpayers who avoid the additional 22.5 % tax, the exemption can be a real benefit.

Capital gains tax disposal relief

Gains on the disposal of both new and ‘second hand' shares in a VCT are not chargeable to capital gains tax, and losses on such a disposal are not allowable, providing all the conditions listed below are satisfied:

• the company was a VCT both when the investor acquired the shares and when he or she disposed of them;
• the disposal is by an individual;
• the individual was aged 18 or over at the date of disposal;
• the value of all the VCT ordinary shares acquired during a tax year by a taxpayer does not exceed the permitted maximum.

For details of our current preferred VCT offerings e mail Andy Booth or call him on 029 2034 8630.