Venture Capital Trusts (VCTs)

What is a VCT?

A Venture Capital Trust, or as they're typically referred to - VCT - is similar to an investment trust.

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They’re for UK investors looking to add diversification to their portfolio with smaller companies.

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They're typically used by those investors who may have used their ISA and pension allowances and have larger portfolios, and the appetite for higher-risk investments.

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VCTs are listed on the London Stock Exchange and typically invest in small, young and innovative companies that are unlisted and often privately owned.

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Smaller companies are a vital area of the UK economy.

They help provide jobs, prosperity and economic growth.

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Examples of former VCT investments include the snack company Graze, property website Zoopla and clothing marketplace Depop.

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VCTs are an exciting and dynamic area to invest in, with the potential opportunity to outperform the wider stock market. But these investments are by nature higher risk as they invest in smaller new companies that are more likely to fail, and their shares can be harder to sell.

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To encourage investors who are taking on more risk, the government offers generous tax incentives.

VCT £200,000 investment is displayed on the left and up to £60,000 income tax on the right with the words “Up to 30% income tax relief if you invest in new VCT issues” below.

These include up to 30% income tax relief if you invest in new VCT issues, up to £60,000, no tax on dividends and no capital gains tax.

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Tax rules can change and benefits will depend on personal circumstances.

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While you can buy VCT shares on the stock exchange like a normal share, you only get the tax relief if you invest in new issues. The VCT managers offer these in tranches at different times of the year.

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You can apply via the VCT manager directly, but you can get discounts by applying using a stockbroker like Hargreaves Lansdown.

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Each tax year, you can invest up to £200,000 in VCTs and receive tax relief, but you will need to hold your investment for at least five years.

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If you understand the high-risk nature of VCTs and are interested in supporting smaller companies and saving tax in the process, have a look at Hargreaves Lansdown’s VCT offers.

A laptop is displayed which has Venture Capital Trusts and Hargreaves Lansdown written on it. A pot plant and coffee mug are displayed either side.

Investment Notes:

Venture Capital Trusts (VCTs) invest in small, early-stage, unlisted companies and are considered high-risk investments. It’s difficult to access your money in the short term and their value and any income they produce will go down as well as up so you could get back less than you put in. VCTs are sophisticated, long-term investments which are only a consideration for larger portfolios. This isn’t personal advice, if you’re unsure if VCTs are right for you, please consider asking for advice. Tax rules can change, and their benefits depend on your individual circumstances.