Why Venture Capital Trusts could be the key to tax efficiency for investors before the end of the year

According to a recent report produced by a joint venture between the Venture Capital Trust Association (VCTA) and the All-Party Parliamentary Group (APPG) for Entrepreneurship, there is a pressing need to increase knowledge and awareness of the tax incentives accessible to investors who put money into VCTs.

It is positive to see that the government has shown a commitment to supporting VCTs in the long term – but what can they offer?

VCTs are a type of investment trust that invest in small and growing companies.

By investing in a VCT, investors have access to potentially greater returns while minimizing their tax bills.

VCTs invest in high-growth small companies operating in exciting sectors such as healthcare and technology with the capacity to expand at a faster pace than larger listed counterparts. These VCTs offer instant portfolio diversification, allowing investors to spread their risk across a range of smaller companies.

One of the main benefits of VCTs is the upfront income tax relief of 30 per cent on up to £200,000 worth of investment, provided that the investment is held for at least five years.

This means that if you invest £20,000 in VCT, you will receive an immediate tax relief of £6,000.

However, it is worth noting that if you sell your investment before the five-year mark, you will be required to pay back some or all the tax relief you received.

Another significant advantage of VCTs is that there is no capital gains tax payable on the disposal of shares, meaning any profits made from the investment are completely tax-free. This can be particularly attractive for investors who have already used up their annual capital gains tax allowance, which is currently set at £12,300.

VCTs are seen by many advisers as a useful additional retirement savings tool.

They can help to diversify an investment portfolio and provide a tax-efficient way to invest in small and growing companies.

Calculus takes a slightly later stage investment approach compared to its peers, with a strategy focused on more established Series A round companies that have a clear path to exit.

Current portfolio includes high-growth and innovative companies such as Wonderhood Studios, eConsult and Arecor Therapeutics.

As with all investments, however, there are risks involved. VCTs are high-risk investments and are not suitable for all investors. It is important to do your research and seek professional advice before investing in a VCT.

VCTs could be the key to tax efficiency for investors before the end of the year.

With upfront income tax relief, no capital gains tax on disposal of shares, and tax-free dividends, VCTs can offer a range of benefits that can help to maximize returns while minimizing tax bills.

If you're considering investing in a VCT, make sure to do your research and seek professional advice to ensure that it is the right investment for you.