Venture capital trusts continue to attract investors

The latest statistics from HMRC show the inflows to venture capital trusts (VCTs) have more than doubled since 2009/10.

At the end of 2019, HMRC published details of how much money was raised by VCTs in 2018/19. At £716m, the figure was the highest since 2005/06, when a temporarily higher rate of tax relief was on offer.

The increased popularity of VCTs in recent years is at least partly due to the restrictions on pensions, such as the tapered annual allowance rules. The tightened pension limits have made pension contributions tax in-efficient for some high (and not so high) earners.

VCTs offer:

  • A 30% tax credit on investments of up to £200,000 per tax year. This is clawed back if the VCT shares are sold within five years;
  • All dividends are free of personal tax, provided the original investment was made within the £200,000 per tax year limit; and
  • No capital gains tax on any gains (but no relief for losses, either).

With the Budget now in March, the year end season for VCT capital raising is well underway. Some VCTs have already closed their issues for the year, so if you wish to invest in VCTs to cut your 2019/20 tax bill, the sooner you act, the better.