Official Statistics

Venture Capital Trusts: Introduction to National and Official Statistics

Updated 24 January 2024

Background

The Venture Capital Trust (VCT) scheme, introduced in 1995, is one of three tax-based Venture Capital Schemes (VCS), the others being the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

The scheme is designed to encourage individuals to invest indirectly in a range of unquoted smaller, higher risk trading companies, by investing through VCTs.

VCTs are similar to investment trusts and are managed by fund managers who are usually members of larger investment groups. Investors subscribe for shares in a VCT, which then onward invests in qualifying trading companies, providing them with funds to help them develop and grow.

Main features of the VCT scheme

• VCTs must be listed on a UK recognised Stock Exchange
• VCTs are exempt from Corporation Tax on any Capital Gains arising on disposal of their investments
• companies which qualify for VCT investment are limited to companies carrying on a qualifying trade with fewer than 250 full time equivalent employees or 500 if the company is Knowledge Intensive (KI) at the time shares are issued, and gross assets of no more than £15 million before investment and £16 million immediately after investment
• companies must also receive their first risk finance investment within 7 years of their first commercial sale or 10 years where KI. A ‘risk finance’ investment includes any VCT investment, investment via the EIS or SEIS, as well as any other investment the company has received via any measure covered by the European Commission’s Guidelines on State aid to promote Risk Capital Investment in Small and Medium-sized Enterprises
• qualifying companies can raise up to £5 million in any 12-month period from VCT investment, or £10 million where the company is KI, and are limited to an overall limit of £12 million or £20 million if KI. These amounts must take account of all risk finance investments received

Reliefs to shareholders

The tax reliefs available to investors are:

• Income Tax Relief – individual shareholders aged 18 or over can claim Income Tax relief at the rate of 30% of up to £200,000 annual investment, provided their shares are held for at least five years
• dividends - no Income Tax is payable on dividends from ordinary shares in VCTs
• Capital Gains Tax - no Capital Gains Tax is payable on disposals by individuals of ordinary shares in VCTs

The reliefs are available to individuals and not to trustees, companies or others who invest in VCTs.

The exemption from Income Tax on dividends, and the exemption from Capital Gains Tax on disposal are available to those who acquire the shares second-hand (for instance, on the stock market or by inheritance) whilst the front-end Income Tax relief is available only to those who subscribe for new shares.

Key policy changes

There have been some policy changes to the scheme since its inception that could be reflected in the statistics.

2004 to 2005

From 6 April 2004, the maximum investment qualifying for Income Tax relief increased from £100,000 to £200,000. Capital Gains deferral relief is not available.

2006 to 2007

From 6 April 2006, the maximum gross assets of qualifying holdings decreased from £15 million to £7 million before investment and from £16 million to £8 million immediately after investment.

The rate of Income Tax relief reduced to 30% from 40%. The 40% rate had been introduced for a two-year period starting on 6 April 2004; prior to that Income Tax relief was given at 20%. The holding period for shares held by VCTs increased from three to five years.

2007 to 2008

From 6 April 2007, VCT qualifying holdings are limited to companies with fewer than 50 full time equivalent employees at the time shares are issued. This restriction also applies to companies seeking funding through the Enterprise Investment Scheme.

From 19 July 2007, companies must have raised no more than £2 million in any 12-month period under any or all of the tax-based venture capital schemes (VCT, EIS).

2009 to 2010

Money raised should be wholly employed within two years of the issue of the relevant holding or, if the issue takes place before commencement of the intended trade, within two years of commencement.

2011 to 2012

The requirement that the trade be carried on wholly or mainly in the UK was removed and replaced with a requirement that the issuing company have a permanent establishment in the UK. Restriction that prevented a VCT investing more than £1 million per annum in any single company was removed (unless the company is a member of a partnership or joint venture that carries on the qualifying trade).

2012 to 2013

From 6 April 2012, VCT qualifying holdings are extended to companies with fewer than 250 full time equivalent employees and gross assets of no more than £15 million before investment and £16 million after investment. The increased thresholds apply also to companies seeking funding through EIS.

The annual investment limit for companies is increased to £5 million, and that sum must take account of EIS and SEIS investment and any other investment received via any measure covered by the European Commission’s Guidelines on State aid to promote Risk Capital Investment in Small and Medium-sized Enterprises.

For investments made by the VCT out of funds raised by it on or after 6 April 2012, an investee company using the funds to acquire shares in another company will not be regarded as using them for a qualifying purpose.

2014 to 2015

From April 2014, VCTs can no longer return share capital to investors within three years of the end of the accounting period in which the VCT issued the shares.

At Budget 2014, the government announced that companies benefiting from Renewables Obligation Certificates (ROCs) and/or the Renewable Heat Incentive (RHI) scheme will be excluded from the SEIS, EIS and VCT schemes.

2014 to 2015

From April 2014, a measure was introduced to prevent investors refreshing Income Tax relief on investments into VCTs by disposing of VCT shares and reinvesting the proceeds in new shares. The legislation allowed new investment into VCTs to still be eligible for Income Tax relief.

However, investments that will not qualify for Income Tax relief are:

• conditional on a share-buy buy-back, or where a share buy-back is conditional upon the investment; or
• made within a six-month period of a sale of shares in the same VCT

The measure does not affect subscriptions for shares where the monies being subscribed represent dividends which the investor has elected to reinvest. The legislation was also changed to allow individuals to subscribe for shares in a VCT via a nominee.

2015 to 2016

Companies (excluding community organisations) undertaking the subsidised generation of electricity involving Contracts for Difference or involving renewable sources (anaerobic digestion or hydroelectric power) were excluded from investments made on or after 6 April 2015.

Investments made on or after 18 November 2015

Additional rules were introduced to the EIS and VCT scheme for shares issued and investments made on or after 18 November 2015:

1. Companies are subject to a lifetime limit on investments received under the VCS (EIS, SEIS, VCT and also Social Investment Tax Relief (SITR)) and from State aid under the Risk Finance Guidelines of £12 million or £20 million for companies that are ‘knowledge intensive’ (KICs).
2. Any VCS investment must be made in a company within seven years of the first commercial sale (10 years for knowledge intensive companies) OR following on an investment received for the same activity received within the above time limit OR for entering a ‘new product’ or a ‘new geographic market’ with the amount raised more than 50% of the previous 3 years average annual turnover.
3. The maximum number of employees at the date of investment increased from less than 250 to less than 500 for KICs.
4. Investee companies are no longer able to use money raised to fund the acquisition of an existing company or trade and the purpose of the investment must be to promote the growth and development of the business.

5. A VCT’s ‘non-qualifying investments’ for liquidity management purposes are now restricted to:

   • shares/units in an Authorised Investment Fund (AIF) or Undertakings for the Collective Investment in Transferable Securities (UCITS)
   • ordinary shares acquired on a regulated market or
   • sums held in an account where available on less than 7 days’ notice only
6. A sunset clause of 6 April 2025 was introduced to the EIS and VCT scheme.

Companies making reserve electricity generating capacity available (for example Capacity Management) no longer qualify for investment after 30 November 2015.

2016 to 2017

From 6 April 2016, companies whose trades consist of undertaking the activities of energy or heat generation, the production of gas or other fuel or generating or exporting electricity no longer qualify for investment.

2017 to 2018

The conditions for obtaining and maintaining VCT approval were amended as follows:

• for investments made by a VCT on or after 15 March 2018, qualifying loans must be unsecured and that returns on loan capital are not above 10%
• for investments made by a VCT on or after 6 April 2018, the grandfathering rules are removed
• 30% of any funds raised by a VCT in an accounting period must be invested in qualifying holdings within 12 months after the end of that period (applying to accounting periods ending on or after 6 April 2018)
• the time that VCTs have to reinvest gains from investments is increased from six to 12 months and the proportion of VCT funds that must be held in qualifying holdings is increased from 70% to 80% (for VCT accounting periods ending on or after 6 April 2019)

A new ‘risk-to-capital condition’ was introduced for the venture capital schemes (EIS, SEIS and VCT) in respect of investments made on or after 15 March 2018. The condition has two parts requiring:

• the company in which the investment is made to have objectives to grow and develop over the long term; and
• that the investment must carry a significant risk that the investor will lose more capital than they gain as a return (including any tax relief)

For investments made on or after 6 April 2018, KICs may elect to use the date their turnover reaches £200,000 in place of the first commercial sale when establishing the initial investment period and the amount that a KIC can receive under the VCS in a year is increased to £10 million.

For further details on the VCT scheme and policy changes, please see the Venture Capital Schemes manual and investment schemes guidance.

Description of the statistical tables

Table 1a

• this table shows, the distribution of the number of VCT investors claiming Income Tax relief, by size of investment and tax year
• the statistics are derived from HMRC Self Assessment data

Table 1b

• this table shows, the distribution of the amount of investment by VCT investors on which Income Tax relief was claimed, by size of investment and tax year
• the statistics are derived from HMRC Self Assessment data

Enquiries

Statistical enquiries

Marc Hindley, Marta Solonina: venturecapital.statistics@hmrc.gov.uk

KAI Direct Business Taxes
HM Revenue and Customs
100 Parliament Street
London SW1A 2BQ

Enquiries relating to investing in Venture Capital Trusts

Email: enterprise.centre@hmrc.gov.uk

Venture Capital Reliefs Team
HM Revenue and Customs
WMBC
BX9 1QL

For more general enquiries please find out best to contact HMRC.