Venture Capital Trusts & Enterprise Investment Schemes
VCTs and EISs are tax-efficient investment vehicles that are actively encouraged by the UK government to support the growth of early stage businesses – they reward you for investing in the lifeblood of the UK economy.
What are VCTs?
Venture Capital Trusts were introduced by the government in 1995 to encourage individuals to invest in small UK companies. They are supported by a number of tax incentives which reflect the fact that investment in smaller and unquoted companies is likely to involve a higher degree of risk than investment in larger companies, or those traded on the main market of the London Stock Exchange.
What are the benefits? The current tax reliefs available for qualifying investors are:
- Up to 30% income tax relief on the amount subscribed*
- Tax-free dividends**
- Tax-free capital gains on the disposal of shares**
*Subject to the shares being held for a minimum of five years with a maximum investment of £200,000 in VCTs in any tax year. The amount of relief you receive cannot exceed your income tax liability for that year.
**Subject to a maximum investment of £200,000 in VCTs in any tax year.
What does an EIS do?
Enterprise Investment Schemes were introduced by the government to encourage individuals to invest in small unquoted companies, which typically involve a higher degree of risk than investment in larger companies and those traded on the main market of the London Stock Exchange.
What are the benefits? Providing the underlying investments made by the EIS are held for at least three years, the current tax reliefs available for qualifying investors are:
- 30% upfront income tax relief (up to a maximum investment of £1 million for the 2014/15 tax year and/or £1 million carried back for tax paid in the 2013/14 tax year)
- 100% inheritance tax relief after two years (provided the investments are held at time of death)
Capital gains tax deferral for the life of the investment
Tax-free growth (provided income tax relief has been given and not withdrawn)
Who invests in VCTs and EISs?
Higher rates of income tax, pension fund restrictions and a prevailing uncertain economic climate have all made tax planning increasingly important to investors. Even more people are today seeking investments which reduce their tax burden and can generate an attractive tax-free return.