On 17 December 2020 the UK released statistics on Venture Capital Trust (VCT) tax relief for the year 2019/2020. The statistics on VCT tax relief are released annually and are important for monitoring and assessment of the effectiveness of the tax relief given for investments in VCTs.

A VCT is a publicly listed, closed-end fund in the UK that gives individual investors an opportunity to gain access to venture capital investments through capital markets. The investments made by VCTs encourage small business growth and potentially allow high returns on investment through high-growth private companies.

The statistics show that in the tax year 2019/2020 VCTs issued shares valued at GBP 685 million, which was a decrease of 4.3% on the shares issued in the previous year. The number of VCTs managing funds dropped slightly to 62 in 2019/2020, and of this number 42 VCTs actually raised funds in the year. The remaining 20 VCTs did not raise funds in the year but were managing the funds they raised in previous years. The number of VCTs in the UK has been falling during the past ten years, as they have been merging over time to achieve economies of scale.

The commentary notes that the number of individual investors claiming VCT tax relief increased by 4% to 19,805 in 2018/2019, the latest year for which figures are available. This figure includes only the investors claiming tax relief on their self-assessment tax return and does not include any investors who may be claiming tax relief through other methods such as the PAYE system, or any investors who may not be claiming any relief.

Of the investors claiming relief under the VCT scheme, around 82% claimed tax relief for an investment of GBP 50,000 or less. Only 8% of the investors claimed relief for an investment of more than GBP 100,000.

The VCT regime was introduced to encourage investment in small and start-up companies by giving tax relief to individual investors based on a percentage of the amount they invest in the VCT. A VCT can obtain tax relief for the trust itself and for its investors, if it is appropriately structured.

Income tax relief of 30% is available for shares that are subscribed for by the investor in a VCT. The tax relief is deductible from the total income tax payable by the individual investor. The investor can receive the VCT tax relief on investments up to a maximum of GBP 200.000 per year. The VCT shares must be held by the taxpayer for a minimum qualifying period of five years. Dividends on VCT shares acquired, whether by subscription or otherwise, are also exempt from income tax, provided that the shares are held for at least five years.