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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Tax Planning using VCTs

8th Mar 2024
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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Do you have any clients who would like to get 30% tax relief on their investment? As high-earners and the wealthy seek avenues for tax-efficient investing, Venture Capital Trusts (VCTs) can be a strategic option worth exploring. Tailored for individuals who are in higher income brackets and are looking to maximize returns while minimizing tax liabilities, VCTs offer a compelling proposition in the investment landscape.

Tax planning using vcts | Davenport Thomas | Two business partnership coworkers analysis strategy with discussing a financial planning graph and company budget during a budget meeting in office room.
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What exactly is a VCT?
 

VCTs are investment vehicles designed to provide capital to small, high-risk companies with significant growth potential. By investing in these early-stage businesses, investors not only have an opportunity to reap potentially substantial returns but also benefit from potentially generous tax incentives offered by the government.

The tax reliefs available to investors are:

  • Income Tax – 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 (CGT) - no CGT is payable on disposals by individuals of ordinary shares in VCTs

VCTs are particularly suitable for high earners who may have exhausted traditional tax-efficient products such as Individual Savings Accounts (ISAs), for individuals who find themselves restricted by pension contribution limits due to their income levels and for those wanting to diversify their portfolios.

Consider suitable clients
 

VCTs may be suitable for those with a high-risk tolerance and a longer-term investment horizon. Given the nature of investing in early-stage companies, there is inherently a higher level of risk involved. However, for investors who can weather short-term fluctuations and remain committed to their investment over the longer term, the potential rewards can be significant.

It's essential to note that VCT investments are illiquid and typically require a minimum investment period of at least five years, ideally ten years, to realize their full potential. Therefore, individuals considering VCTs should have a financial situation that allows for locking away capital without needing immediate access.

At Davenport Thomas we understand the specialist needs of high earners and wealthy individuals. So, for a discussion about how we can help you and your clients before the end of the tax year, you can book directly into Richard’s diary here, email us or call us.

[email protected]
Contact number – 0208 6182077
Calendly – Richard Mumford

 

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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. Not all VCTs are regulated by the FCA.

Davenport Thomas is a trading name of RJM & Associates (Hampton) Ltd which is authorised and regulated by the Financial Conduct Authority.