On 24 January 2024 the UK released statistics on Venture Capital Trust (VCT) tax relief for the year 2021/2022. The VCT scheme is one of three tax-based venture capital schemes available to investors in the UK, together with the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

The compilation of statistics on VCTs and other types of tax relief contributes valuable information to the UK government for its future policymaking in this area. By monitoring tax relief in this way, the UK government can better assess the effectiveness of the tax incentives given to VCTs. The extent to which the tax relief increases the amount of investment is difficult to assess but the statistics can highlight issues arising in relation to the tax relief and allow the government to make adjustments to improve the targeting of the relief.

A VCT is a publicly listed, closed-end UK fund providing individual investors with a chance to access venture capital investments through capital markets. The investments made by VCTs encourage small businesses to grow and give investors an opportunity to potentially access high returns from investing in high-growth private companies.

HMRC is delaying until May 2024 the publication of statistics on the amount of funds raised by Venture Capital Trusts (VCTs), and on the number of VCTs that are raising and managing funds. The delay in publication will enable them to take advantage of HMRC administrative data in producing the statistics. The latest release therefore only includes the statistics for VCT investors claiming tax relief and for amounts of tax relief claimed by them.

In 2021/22, the latest year for which statistics are available, VCT investors claimed tax relief on GBP 1,040 million of investments, which was a 61% increase on the previous year. In that year a total of 25,800 VCT investors claimed income tax relief, representing a 32% increase on the previous year.

Although the maximum investment in a year on which relief can be claimed is GBP 200.000, most of the VCT investors invested less than GBP 50,000 into VCT funds. In 2021/22 the average amount invested by an individual in VCT funds was around GBP 40,000.

The statistics on the amount of investment on which tax relief was claimed includes investors claiming tax relief on their self-assessment tax return but it does not include investors claiming tax relief through other methods such as the PAYE system.

Background

The UK government introduced the VCT regime to encourage investment in small and start-up companies by allowing tax relief to individual investors based on a percentage of the amount they invest. If a VCT is suitably structured, it can obtain tax relief for the trust itself and for its investors.

Income tax relief is available at 30% where an investor subscribes for shares in a VCT. 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 exempt from income tax if the shares are held for at least five years. There is an exemption from capital gains tax on disposals by individuals of ordinary shares in VCTs.