Answers · UK 2025/26

What tax reliefs do Venture Capital Trusts (VCTs) offer?

VCTs offer 30% upfront income tax relief on investments up to £200,000 a year (provided shares are held for at least 5 years), plus tax-free dividends from the VCT and tax-free growth with no Capital Gains Tax on disposal. Unlike EIS, VCT losses cannot be offset against income tax and there is no CGT deferral relief.

Last updated: 1 July 2026Last reviewed: 1 July 2026How we verify

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Venture Capital Trusts (VCTs) are listed investment companies that pool money to invest in small, higher-risk UK companies, offering a distinct package of tax reliefs that is more limited than EIS but comes with the practical advantage of being a pooled, more liquid vehicle traded on the stock exchange. **Upfront income tax relief** Investors subscribing for new VCT shares get 30% income tax relief on investments up to £200,000 per tax year, reducing their income tax bill directly. This relief is clawed back if the shares are sold within 5 years of purchase, so the minimum holding period to keep the relief is 5 years (shorter than EIS's holding requirements for some purposes, but the clawback rule is strict). **Tax-free dividends** Dividends paid by a VCT are entirely free of Income Tax, regardless of how much you receive and regardless of your own tax band -- unlike ordinary company dividends, which are taxed above the £500 Dividend Allowance. This is one of the most attractive ongoing features of VCTs for income-seeking investors, especially higher and additional rate taxpayers who would otherwise pay 33.75% or 39.35% dividend tax. **No Capital Gains Tax on disposal** Gains made when you eventually sell your VCT shares are completely free of Capital Gains Tax, with no minimum holding period requirement for this specific exemption (though selling within 5 years still triggers clawback of the original income tax relief). **What VCTs do NOT offer (unlike EIS)** - No CGT deferral relief on gains from other assets - No loss relief against income tax if the VCT falls in value (losses can only be set against capital gains, in the normal way for shares) - Existing (second-hand) VCT shares bought on the stock exchange do NOT qualify for the 30% income tax relief -- only newly issued shares subscribed for directly from the VCT qualify **Worked example** An investor subscribes £20,000 for new shares in a VCT, claiming £6,000 (30%) income tax relief, reducing their tax bill directly that year. Over the following years the VCT pays tax-free dividends totalling £3,000. After holding for 6 years (past the 5-year minimum), they sell their shares for £22,000, paying no Capital Gains Tax on the £2,000 gain. Their total tax-free return across dividends, the CGT exemption, and the retained upfront relief makes VCTs attractive for income and total-return purposes, even though the underlying portfolio companies are higher risk than a mainstream fund. **Why choose VCT over EIS (or vice versa)** VCTs suit investors wanting diversified exposure to multiple small companies through a single listed vehicle with somewhat greater liquidity and ongoing tax-free income, while EIS suits investors comfortable with concentrated single-company risk who value the additional CGT deferral and income tax loss relief that VCTs do not offer. Many experienced investors use both within their overall tax-efficient investment planning, alongside pensions and ISAs.