Individuals aged 18 or over who acquire ordinary VCT shares
(whether by subscription for new shares or otherwise) are exempt
from income tax on dividends in respect of shares acquired within
the ‘permitted maximum'. The permitted maximum of shares in
VCTs is £200,000 for 2004-05 onwards (a year beginning on 6
April and ending on 5 April in the following year). Investors who
receive exempt dividends do not have to show them on their tax
returns and you should not assess investors on exempt dividends.
The relief applies only to those dividends paid by the VCT
whilst it is approved. If provisional approval is withdrawn (see
VCM60530), all dividends paid during the
period of approval will be treated as if they were never exempt
from income tax.
Relief is not due unless the shares are acquired for genuine
commercial purposes and not as part of a scheme or arrangement, the
main purpose of which is tax avoidance.
Before 6 April 1999, the VCT could also claim tax credits.
Individuals gave written declarations of eligibility for the relief
to the VCT which claimed the tax credits, in respect of the
dividends paid, on their behalf from SPSS. The VCT then paid these
to individuals. Individuals could not claim tax credits from their
districts. Tax credits are still shown on the dividend tax
vouchers. They do not represent tax paid by the investor, but the
tax credit reflects the fact that the VCT has been taxed on the
profits that are being passed to the investors. Consequently, tax
credits are not payable to VCTs or investors after 6 April
1999.
