VCM60020 - VCT scheme: general: what is a VCT?

ITA/S250, ITA/Part 6 Chapter 2, TCGA92/S16 (2) & TCGA92/S100

A VCT is a company, broadly similar to an investment trust, which has been approved by HMRC and which subscribes for shares in, or lends money to, small unquoted companies. Under the VCT scheme, VCTs and their investors enjoy certain tax reliefs (see below).

The VCT scheme is designed to encourage investment in small unquoted companies. Individuals invest by holding shares in a VCT. The VCT invests in a spread of small unquoted companies, enabling investors to spread their risk, just as they do by holding shares in an ordinary investment trust company.

An approved VCT has a number of tax advantages:

• the VCT is itself exempt from CT on chargeable gains (and losses for chargeable gains purposes are not allowable losses),
• individual investors can claim 'front-end' income tax relief on subscriptions of up to £200,000 for 2004-05 onwards (£100,000 for previous income tax years) ( VCM64000 onwards),
• individual investors are exempt from income tax on dividends in respect of ordinary shares acquired within the 'permitted maximum' of £200,000 for 2004-05 onwards (£100,000 up to 5 April 2004), ( VCM64200), and
• individual investors are exempt from CGT on the disposal of ordinary shares acquired within the 'permitted maximum' of £200,000 for 2004-05 onwards (£100,000 up to 5 April 2004), ( VCM66000 onwards).

Investors obtain 'front-end' income tax relief by submitting claims to their own HMRC office, either as part of their SA tax return, or separately.

Note that up to 5 April 2004 individual investors could claim CGT deferral relief in respect of subscriptions on which 'front-end' income tax relief had been given ( VCM68000 onwards). This is not available for later years.