Venture Capital Trusts

Venture capital trusts were introduced in 1995 to encourage investment in unquoted trading companies; it is now possible for VCTs to invest in AIM-listed companies. VCT's are listed companies whose shares are quoted on the stock exchange; the investor buys shares in the VCT. The VCT is exempt from corporation tax CGT.

The investor must be aged 18 to be eligible to invest in a VCT. As with EIS, investment into VCT's is higher risk, with the potential for capital growth and income. VCT's do offer some diversification of risk because the VCT can be spread over a number of different companies.

Taxation of the VCT

Income Tax

Income tax relief at a rate of 30% is given on VCT investments of up to £200,000 in new ordinary shares in any single tax year, as long as the shares are held for at least five years.

Dividends from ordinary shares acquired through a VCT are free from income tax, up to the £200,000 limit of shares acquired in each tax year

Capital Gains

Shares in a VCT bought on or after 6 April 2006 must be held for five years.