Venture Capital Trusts (VCTs)
Learn more about investing in VCTs with interactive investor.
What are VCTs?
Venture Capital Trusts (VCTs) started life in 1995. They were launched to encourage investment in early stage companies by offering attractive tax breaks to investors, in the form of 30% initial tax relief for investments up to £200,000 a year and tax-free dividends.
VCTs invest in young entrepreneurial companies that are unquoted, with a relatively recent rule change requiring VCTs to invest in businesses that are typically less than seven years old. As such, these underlying investments carry considerably higher risk than do listed businesses on the London Stock Exchange. In return for taking that risk, VCT shareholders get a variety of generous tax breaks.
VCTs advantages and disadvantages
Benefits and risks associated with VCTs investing
VCTs are highly tax-efficient, offering 30% income tax relief as long as the shares are held for five years, plus tax-free dividends and no capital gains tax on profits on the disposal of VCT shares. Investors can put up to £200,000 into VCTs each year.
VCTs attract high earners (who should also be sophisticated investors) with few other options: they have reached their limits for pension contributions and used up their dividend tax allowance. As a general rule of thumb, if you pay 40% or 45% tax and have maxed out your pension and ISA, then VCTs are worth considering.
The tax incentives are attractive, but it is important to remember the tax tail should never wag the investment dog. Performance overall has been creditable for VCTs, albeit some way behind mainstream equity markets. Over 10 years, the average generalist VCT has produced a share price total return of 123% (as at 17 July 2020), according to the Association of Investment Companies. This compares with 149% for the average UK all-companies investment trust.
Over the past couple of years, VCTs have become riskier propositions as they are now required to invest in earlier-stage companies, mainly those that have been trading for less than seven years. In addition, the investable universe for VCTs has become more limited, with management buyouts excluded and investments in asset-backed firms restricted. One the one hand investing in younger businesses could lead to high returns, but at the same time risk is increased.
It is important to point out that VCTs are complex products and are only suitable for sophisticated investors. Please ensure you understand the risks involved. If you are unsure about the suitability of any investment please seek financial advice.
- Investors can receive income tax relief of 30% on up to £200,000 invested in newly issued shares held for at least five years
- Dividends paid out by VCTs are tax-free
- All capital gains on sale of shares are also tax-free
- The underlying investments in VCTs are high-risk and have become riskier over the past couple of years, due to rule changes
- Charges levied by VCT provider tend to be high – around 1.75% to 2% a year is typical. In contrast funds and investment trusts tend to cost 0.85% to 1% a year.
- Tax benefits for VCT investors could at some point be taken away or changed
Types of VCTs
These VCTs invest in a wide range of companies in different sectors and stages of development.
As the name suggests they only invest in companies listed, or about to become listed, on the Alternative Investment Market (AIM).
Tend to focus their investment expertise on one particular sector, e.g. Healthcare.
Limited Life VCTs
Set out on a 5+ year plan and will wind up the VCT at the end of this period.
VCTs Tax Rules and Benefits
Venture capital trusts (VCTs) are collective funds that take stakes in small companies that investors would generally regard as high-risk. VCT investors get a variety of generous tax breaks in return for committing their cash to those high-risk investments. These include:
- upfront income tax relief of 30% on investments of up to £200,000 in new VCT shares
- tax-free dividends
- tax-free capital growth
Are VCTs right for me?
Investors should feel comfortable that they meet the following criteria:
- High net worth and sophisticated investors who are UK residents.
- Investors who have a sufficient income tax liability to reclaim income tax relief at 30% of the amount subscribed.
- Investors who have realised a capital gain that would attract Capital Gains Tax.
- Investors who will not need access to their capital for at least five years and are comfortable with higher risk investments.
Why choose ii
✔ We charge a market-leading one-off fee of £30 (inc VAT) to process your VCT application.
✔ Most VCT Managers offer broker discounts, which we will reinvest fully for you in new shares.
✔ Unlike some brokers we credit all the trail income we receive from your VCT investments as cash in your account.
Current VCTs Offers
Here we list current VCT offers available for investment through interactive investor. Before investing, please ensure you have read and understood the key documents and 'how to apply through ii' information below.
Calculus VCT Offering
|Legal name(s)||Calculus VCT plc|
|Amount raising||£10m with £5m over-allotment facility|
|Total discount||5.0% (i.e. no initial fee) until 31 December 2020. Then 3.0% (3.5% for existing Calculus VCT investors) if you apply before 29 January 2021, 2.0% (2.5% for existing Calculus VCT investors) thereafter|
Downing ONE VCT Offering
|Legal name(s)||Downing ONE VCT plc|
|Total discount||2.25% plus an additional 1% early bird discount (1.5% for existing Downing VCT investors) if you apply before 11 December 2020|
Hargreave Hale AIM VCT Offering
|Legal name(s)||Hargreave Hale AIM VCT plc|
|Amount raising||£20m with £10m over-allotment facility|
|Total discount||2.0% until first £10m raised or until 30 November 2020, whichever is soonest. 1% thereafter|
Maven VCTs Offering
|Legal name(s)||Maven Income & Growth VCT 1 plc
Maven Income & Growth VCT 5 plc
|Amount raising||£20m (£10m per VCT), with £20m over-allotment facility|
|Total discount||Early investment incentive of 4.25% (4.5% for existing shareholders) until 29 January 2021. 3.0% thereafter.|
Octopus Apollo VCT Offering
|Legal name(s)||Octopus Apollo VCT plc|
|Amount raising||£25m with £10m over-allotment facility|
|Total discount||4.5% (5.5% for existing Octopus Apollo VCT investors) if you apply before 15 December 2020. 2.5% (3.5% for existing Octopus VCT investors) thereafter|
Octopus Titan VCT Offering
|Legal name(s)||Octopus Titan VCT plc|
|Amount raising||£80m with £40m over-allotment facility|
|Total discount||3.5% (4.5% for existing Octopus VCT investors) if you apply before 15 December 2020. 2.5% (3.5% for existing Octopus VCT investors) thereafter|
Pembroke VCT Offering
|Legal name(s)||Pembroke VCT plc|
|Amount raising||£20m with £20m over-allotment facility|
|Total discount||3.5% until first £5m raised, then 3.0% on applications received from £5m to £10m or up until the 31 December 2020, whichever is soonest. 2.5% thereafter|
ProVen VCTs Offering
|Legal name(s)||ProVen VCT plc
ProVen Growth & Income VCT plc
|Amount raising||£60m (Up to £20m per Company with £10m over-allotment facility per Company)|
|Total discount||3.25% (4% for existing ProVen VCT shareholders) for the first £5m of funds received or up until the 1st February 2021, whichever is soonest. 2.5% thereafter|
Puma Alpha VCT Offering
|Legal name(s)||Puma Alpha VCT plc|
|Amount raising||£20m with £10m over-allotment facility|
|Total discount||2.5% until 30 September 2020|
Puma VCT 13 Offering
|Legal name(s)||Puma VCT 13 plc|
|Amount raising||£7.5m with £2.5m over-allotment facility|
|Total discount||2.0% (3.0% for existing Puma VCT investors) if you apply before 18 December 2020. 1.0% (2.0% for existing Puma VCT investors) thereafter|
Seneca Growth Capital VCT Offering
|Legal name(s)||Seneca Growth Capital VCT plc|
|Amount raising||£10m with £10m over-allotment facility|
|Total discount||3.5%, plus a 0.5% loyalty discount for existing shareholders and existing Seneca investors, until 30 November 2020. 2.5% thereafter.|
Triple Point VCT 2011 Offering
|Legal name(s)||Triple Point VCT 2011 plc|
|Amount raising||£10m with £10m over-allotment facility|
|Total discount||4.0% (5.0% for existing Venture shareholders) up until 31 December 2020, 3.5% (4.5% for existing Venture shareholders) between 1 and 31 January 2021 for the first £5m of funds, whichever is soonest. 3.0% thereafter|
How to apply through interactive investor
To apply you need a Trading Account.
As VCTs are classified as a Complex Instrument you must first complete our online appropriateness assessment, which can be found when you log in to your Trading Account. Choose the ‘personal details and preferences’ option from the ‘account’ tab, then select ‘Appropriateness Assessment Form’ from the ‘Account Information’ section. On successful completion we will be able to process your application. The assessment only needs to be completed once.
Please follow the instructions on the application form of your chosen VCT and post to the following address enclosing a cheque for the amount you wish to subscribe made payable to the VCT manager/provider:
Corporate Actions Department
Please write your interactive investor account number at the top of your application form
We charge a flat fee of £30 per application – please ensure there are sufficient funds in your Trading Account to cover this fee. If insufficient funds are available the application process may be delayed.
In order to receive the tax benefits that VCTs can offer the application must be in your own named account.
Your application must be received by us a minimum of 3 working days prior to the VCT application closing date. This includes any early bird offer specified dates.
We will finalise your application and send to the company, and where possible you will receive your new VCT shares electronically in your trading account as default. If you would prefer to receive a share certificate, please let us know along with your application. If you choose to reinvest your VCT dividends with the VCT manager/provider, you will receive a share certificate.
What happens if I want to sell my VCT shares?
Investors need to be aware of when they buy and sell VCT shares in order to attract and keep the tax advantages. The income tax relief of 30% on investments of up to £200,000 in new VCT shares must be repaid if the VCT shares are not held for five years. Those who want to sell VCT shares will need to have their VCT share certificate to hand.
What should I do if I lose my share certificate?
Those who have lost their share certificate should firstly contact the VCT provider who issued the VCT share certificate and VCT tax certificate. The latter enables individuals to claim VCT tax relief.
Are AIM VCTs IHT-free?
No, AIM VCTs do not qualify for inheritance tax relief. However, private investors can create their own portfolio of Aim shares qualifying for business property relief, which can be passed on free of inheritance tax after they have been held for two years and provided they are still owned at death. Aim shares can be held in a stocks and shares ISA.
What are the differences between EIS, VCTs & SEIS?
VCT popularity has tended to trump that of other products such as enterprise investment schemes (EIS). This is because the small companies VCTs back while they are at an early stage in their development are, nevertheless, more established than the start-up businesses held in EIS schemes. Investors who invest in EIS schemes for a minimum period of three years benefit from 30% tax relief. But one key difference between VCTs and EIS is that investments in an EIS-qualifying company can help mitigate against inheritance tax, provided the investment is held for two years and at the time of death.
The companies held in seed enterprise investment scheme (SEIS) are even smaller than those held in EIS in schemes in terms of turnover and number of employees. As a trade-off for the higher risks involved, investors are offered an even bigger tax break. By committing cash to SEIS for three years, the investor benefits from a 50% income tax break.
New to interactive investor?
Open a Trading account to invest in Venture Captial Trusts. VCTs are classified as a Complex Instrument so you will need to complete our online appropriateness assessment once you have opened your account.
Already an ii customer?
As VCTs are classified as a Complex Instrument you must first complete our online appropriateness assessment, which can be found when you log in to your Trading Account.