Glossary · UK
What is Venture Capital Trust (VCT)?
A tax-advantaged investment company listed on the London Stock Exchange that invests in small UK companies. Investors get 30% Income Tax relief on up to £200,000 per year, and dividends are tax-free.
Full Definition
A Venture Capital Trust (VCT) is a publicly listed investment company that pools investor funds and invests them in a portfolio of small, higher-risk UK companies. Because VCTs channel capital into early-stage businesses, HMRC offers investors a generous tax incentive package. Investors can claim 30% Income Tax relief on new VCT subscriptions of up to £200,000 per tax year — so a £10,000 investment reduces your tax bill by £3,000. This relief must be kept if shares are held for at least five years; selling before five years triggers a clawback. Dividends paid by VCTs are completely tax-free in the investor's hands, including inside an ISA (where dividends from a VCT would in any case not be taxable). Disposal of VCT shares is exempt from Capital Gains Tax. Unlike EIS, there is no CGT deferral relief available. VCTs are managed funds, so investors get diversification across many small companies rather than a concentrated individual-company bet. The trade-off is liquidity risk: VCT shares often trade at a discount to net asset value on the secondary market, and exit can be slow. VCTs are classified as higher-risk investments and are generally suitable only for experienced investors who understand they could lose their entire investment. They sit alongside EIS and SEIS in the UK's venture and growth capital tax-relief landscape.