What is venture capital trust tax relief?
Answered 17 March 2026
Here is a comprehensive explanation of Venture Capital Trust (VCT) tax relief under UK law.
What the law says
What is a VCT?
A venture capital trust is a company that (a) is not a close company, and (b) is for the time being approved by HMRC for the purposes of Part 6 of ITA 2007.
The Four Tax Reliefs
VCT investment attracts four distinct tax reliefs:
1. Income Tax Relief ("Front-End" Relief) — ITA 2007, ss.261–263
An individual is eligible for VCT income tax relief for a tax year if:
- a VCT issues eligible shares to the individual in that year,
- the VCT issues the shares for raising money, and
- the individual subscribes for the shares on their own behalf.
Additional conditions require that the shares are issued before 6 April 2035, are subscribed for and issued for genuine commercial reasons and not as part of a tax avoidance scheme, and the investor is at least 18 years old when the shares are issued.
The maximum amount on which relief can be claimed is £200,000 per tax year.
The relief takes the form of a tax reduction equal to 30% of the amount subscribed, given at Step 6 of the income tax calculation in s.23 ITA 2007.
2. Tax-Free Dividends — ITTOIA 2005, s.709
No liability to income tax arises in respect of a venture capital trust dividend where:
- the company was a VCT at the end of the accounting period in which the profits arose and when the dividend is paid, and was a VCT when the investor acquired the shares;
- the investor is an individual of at least 18 years, beneficially entitled to the dividend as holder or through a nominee;
- the market value of all VCT shares acquired in the tax year of acquisition did not exceed £200,000; and
- (for shares acquired after 8 March 1999) the shares were acquired for genuine commercial reasons and not as part of a tax avoidance scheme.
3. CGT Exemption on Disposal — TCGA 1992, s.151A
A gain or loss accruing to an individual on a qualifying disposal of ordinary shares in a company which was a VCT when the individual acquired the shares and is still a VCT at the time of disposal is not a chargeable gain or an allowable loss.
4. CGT Exemption for the VCT itself — TCGA 1992, s.100
Gains accruing to the VCT itself are not chargeable gains.
Withdrawal of Front-End Relief
Front-end income tax relief is withdrawn or reduced if the eligible shares are disposed of within five years of the date of issue (the "minimum holding period"). If VCT approval is withdrawn, investors are treated as having disposed of their shares immediately before the withdrawal takes effect.
HMRC guidance / practice
Claiming the relief: A claim can be made either in a tax return (by completing the appropriate box) or as a stand-alone claim (no set form required, but it must identify the amount claimed and the year of assessment). The investor may have received an income tax relief certificate from the VCT, but HMRC officers should only ask for this if they have reason to doubt the validity of the claim.
Amount of relief given: Relief is the smaller of:
- an amount equal to tax at 30% on the amounts subscribed within the permitted maximum (£200,000), and
- the amount which reduces the individual's income tax liability to nil.
The 30% is calculated whether or not the individual has a higher-rate liability. Relief is given before EIS relief, private medical insurance reductions, double taxation relief, and basic rate tax retained on charges.
Minimum holding period: Individuals aged 18 or over who subscribe on their own behalf for new ordinary shares in VCTs are entitled to front-end relief on subscriptions up to £200,000 per tax year. To retain the relief, shares issued on or after 5 April 2006 must be held for at least five years. Throughout this period, the shares must carry no preferential rights to dividends or assets on winding up, and no rights to be redeemed.
Citation sources
Part 6 Venture capital trusts Chapter 2 VCT relief Entitlement to relief Eligibility for relief 261 1 An individual (“A”) is eligible for VCT relief for a tax year if— a a VCT issues eligible shares to A in that year, b the VCT issues the shares for raising money, and c A subscribes for the shares on A's own behalf. 2 The amount in respect of which A is eligible for VCT relief for the tax year by reference to any shares is the amount subscribed by A for the shares. 3 A is eligible for VCT relief
Part 6 Exempt income Chapter 5 Venture capital trust dividends Venture capital trust dividends 709 1 No liability to income tax arises in respect of a venture capital trust dividend if— a conditions A and B are met, and b where the dividend is paid in respect of shares acquired after 8th March 1999, condition C is met. 2 In subsection (1) a “ venture capital trust dividend ” means a dividend paid in respect of ordinary shares in a company which— a is a venture capital trust— i at the end of the
Part 6 Venture capital trusts Chapter 2 VCT relief Entitlement to relief Entitlement to claim relief 262 1 An individual (“A”) who is eligible for VCT relief by reference to shares issued in a tax year is entitled to claim VCT relief for that year. 2 A is entitled to claim VCT relief in respect of the amount on which A is eligible for VCT relief by reference to all or some of the shares. This is subject to subsection (3). 3 A is not entitled to claim VCT relief for any tax year on an amount of m
Individuals aged 18 or over who subscribe on their own behalf for new ordinary shares in VCTs (‘investors’) are entitled to ‘front-end’ income tax relief on subscriptions up to the ‘permitted maximum’ of (£200,000 per tax year for tax years 2004-05 onwards (£100,000 for previous tax years)). The reference to ‘tax year’ here means a year beginning on 6 April and ending on 5 April in the following year. To retain the relief shares must be retained for a minimum holding period. Shares issued on or
Part 6 Venture capital trusts Chapter 2 VCT relief Entitlement to relief Form and amount of relief 263 1 An individual who— a is entitled to claim VCT relief for a tax year, and b claims such relief for the year on any amount, is entitled to a tax reduction for the year. 2 The tax reduction is equal to 30% of the amount in respect of which the claim is made. 3 The tax reduction is given effect at Step 6 of the calculation in section 23.
A claim to relief can be made either in a tax return or as a stand-alone claim. To claim relief in the tax return the claimant need only complete the appropriate box in the main return. There is no set form for a stand-alone claim. The claim however must identify the amount of income tax relief claimed and the year of assessment in which the shares were issued. For instructions regarding in-year claims for an adjustment to the claimant’s PAYE coding, see VCM51060. Those instructions make clear t