of small, higher-risk trading companies not listed on any stock exchange. Fund managers of VCTs must buy predominantly the shares of unlisted companies and the investment risk is spread over a number of them.
VCTs themselves are listed and can be traded with other investors.
Income tax relief is 30% at present and the annual investment limit is £200,000. This relief is withdrawn if the shares are disposed of within 5 years. However, it may be difficult to dispose of shares even though they are listed, because tax relief is only offered on the subscriptions of new shares, not those bought in the market.
Unlike EISs, VCTs cannot be used for Capital Gains Tax deferral.
Overall, a VCT should be a lower risk investment than an EIS (featured here https://www.oliverassetmgmt.co.uk/spotlight-on-eis-risky-tax-relief/ ) because it is a pooled investment, whereas an EIS is an investment in a single company.
Approach with caution, but, if you are interested in how either VCTs or EISs could work for you please get in touch using the Make An Enquiry tab above.
Please note that all figures given represent our understanding of current HMRC legislation and this article does not constitute financial advice.
I had a friend that years ago had worked out that with his given rate of tax and National Insurance, he was effectively working for the Government until mid afternoon on a Tuesday before he made any money for himself.
Given our current levels of tax, I wonder what he’d make of things now?
He could well be working until late Thursday with top rates of tax being 50%.
We know that reducing the tax burden is one of the 5 key concerns of our clients and that this has never been more acute. I hear from people on a daily basis that they are looking for ways to pay less tax.
Interestingly, they always want to look to the esoteric methods rather than the tried and tested.
So please speak to your adviser and make sure you’re maximising your ISA allowance, pension contributions, CGT annual exemptions, IHT allowances – use a relevant life policy through your limited company if your able and save corporation tax on your life cover premiums.
If you want more, then certainly look at the improved tax breaks Venture Capital Trusts & Enterprise Investment Schemes offer since the last budget (be well aware of the higher levels of risk that might be involved here.)
In short, pay your tax but make sure you take full advantage of the ways you can pay less.
I’ll be discussing the ways you can use financial planning tools to save tax in more detail in the coming weeks.
Call me anytime to discuss this further or any other aspect of your financial planning needs.