Tax advantages of using Venture Capital Trusts (VCTs) as part of your personal tax planning.
Following on from our blog about the use of the Enterprise Investment Scheme (READ HERE), we thought we would focus on another investment strategy which may see you obtain tax benefits from – Venture Capital Trusts (VCTs)
We’re going to take a look at what the tax advantages of #VCTs are…
1. Income Tax Relief
VCTs are designed to encourage investment in small, early-stage companies, and the government incentivizes this through generous tax relief schemes. Investors can receive upfront tax relief of up to 30% on the amount invested in VCTs, subject to certain conditions. This is an immediate tax benefit in the year of the investment made which can be offset against your income tax liabilities.
2. Tax Free Dividends and Capital Gains
One of the most appealing aspects of investing in VCTs is the potential tax free dividends and capital gains. Dividends received from VCT investments are typically exempt from income tax, offering investors a stream of tax-efficient income. Furthermore, any capital gains realized upon selling VCT shares are also tax free (subject to certain conditions), enhancing the overall returns.
3. Inheritance Tax (IHT) Mitigation
VCT investments held for a minimum of two years also qualify for Business Property Relief (BPR), therefore potentially mitigating exposure to Inheritance Tax. This can therefore make VCT attractive to individuals who are looking to pass on their wealth to future generations whilst mitigating the impact of IHT on their estate.
VCTs therefore offers some great opportunities in terms of managing immediate and future tax liabilities.
It’s important to note that VCTs are considered to be a longer term investment, and if sold within 5 years you would be required to repay the upfront tax relief you achieved on your initial investment.
VCT investments carry some risk, so as well as reviewing the tax advantages of the investments you should consider this alongside your wider risk profile and investments, so we would always encourage you to chat with a Financial Advisor as well. You’ve hopefully already got a great contact supporting you with this but if not, we would be pleased to make an introduction.
If you want to understand if there would be tax benefit to you in utilising VCTs as part of your planning, then reach out to the team here at RiverView Portfolio.
