{"id":4953,"date":"2018-09-12T10:00:08","date_gmt":"2018-09-12T09:00:08","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=4953"},"modified":"2026-01-29T10:31:23","modified_gmt":"2026-01-29T10:31:23","slug":"venture-capital-trusts","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/venture-capital-trusts\/","title":{"rendered":"What are venture capital trusts?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat are venture capital trusts?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2018-09-12T10:00:08+01:00\">12 September, 2018<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What are venture capital trusts?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/venture-capital-trusts\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n\t<\/header>\n\n\n\n<div class=\"wp-block-post-author has-dark-background-color alignfull\">\n\t<div class=\"container\">\n\t\t<div class=\"col\">\n\t\t\t\t\t\t\t<div class=\"co-authors\">\n\t\t\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-gb\/blog\/author\/staceymcintosh\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2018\/11\/Stacey-McIntosh-350-1.jpg\" class=\"entry-author__image\" alt=\"\" \/>\t\t\t\t<span class=\"entry-author__name\">Stacey McIntosh<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n<p>Venture capital trusts have only been in existence since 1995 and many people still don\u2019t understand them. A VCT or venture capital trust is a closed-end collective investment scheme which was introduced by the UK government to encourage investments in new businesses. In return for backing small companies, investors get highly efficient VCT tax benefits.<\/p>\n\n\n\n<p>Typically, venture capital trusts are publicly traded companies, listed on the London Stock Exchange, that invest in unlisted companies. There are three main types of VCTs:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Generalists:<\/strong> Invest in unlisted <a href=\"https:\/\/www.sage.com\/en-gb\/size\/small-business\/\">small companies<\/a> from a wide range of industries.<\/li>\n\n\n\n<li><strong>AIM: <\/strong>Like a generalist, AIM (Alternative Investment Market) VCTs invest in a diverse array of companies but have a stronger preference for AIM-listed companies. The Alternative Investment Market is a sub-market of the London Stock Exchange.<\/li>\n\n\n\n<li><strong>Specialists: <\/strong>Invest in unlisted small companies within a specific industry like healthcare or tech.<\/li>\n<\/ol>\n\n\n\n<p>VCT investments can either be evergreen or limited-life. Evergreen VCTs are set up to invest indefinitely, while limited-life VCTs are normally wound up after the minimum five-year holding period so assets can be distributed to shareholders.<\/p>\n\n\n\n<p>While the venture capital trust scheme was originally considered high-risk, it has proven to be far less risky than initially expected and has recently seen significant growth. <u><a href=\"https:\/\/www.wealthclub.co.uk\/articles\/investment-news\/total-vct-fundraising-2017-18\/\">Recent reports<\/a><\/u> from the Wealth Club reveal VCT investment demands have reached a twelfth-year record with \u00a3728m being raised during the 2017\/18 tax year. A 34% increase on the previous tax year.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-do-venture-capital-trusts-work\"><strong>How do venture capital trusts work?<\/strong><\/h2>\n\n\n\n<p>Venture capital trusts are already established companies, listed on the London Stock Exchange, that collect money from investors to provide capital for VCT-qualifying companies. VCTs must comply with VCT rules established by HMRC:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>VCTs must publicly release their annual records and accounts<\/li>\n\n\n\n<li>An independent Board of Directors must be in place to protect shareholders<\/li>\n\n\n\n<li>Meetings must be held for shareholders such as an AGM (Annual General Meeting)<\/li>\n\n\n\n<li>Like any public company, VCTs must also comply with standard corporate governance standards.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-do-businesses-qualify-for-a-vct-investment-hmrc-vct-rules\"><strong>How do businesses qualify for a VCT investment? HMRC VCT rules<\/strong><\/h2>\n\n\n\n<p>HMRC has strict rules to screen potential companies for VCT investments. The government created these rules to ensure that a) venture capital trusts continue to meet the scheme\u2019s initial objectives and b) funding is provided to companies that need it for growth.<\/p>\n\n\n\n<p>To qualify for VCT investment, companies must be located in the UK and undertake \u201cqualifying trades\u201d. Only a few trades, like land development, finance, and farming, don\u2019t qualify so this isn\u2019t typically a problem for most businesses.<\/p>\n\n\n\n<p>Businesses must have less than \u00a315m in gross assets when they receive the investment or \u00a316m shortly after. They must employ less than 250 full-time members of staff. In addition, companies need to be in the early stages of development.<\/p>\n\n\n\n<p>Unless a business works within a knowledge-intensive sector, businesses that have been commercially viable for more than seven years don\u2019t qualify for a VCT investment.&nbsp; In some cases, such as when an established company wants to move into a new market or create a new product, follow-on investments are permitted.<\/p>\n\n\n\n<p>The rules for businesses employing highly skilled individuals or that meet specific innovative criteria are different. Knowledge-intensive companies are allowed to employ up to 500 full-time members of staff and have been operating for 12 (instead of seven) years. To fall into this category, businesses must spend at least 15% of its annual budget for the last three years on innovation and R&amp;D.<\/p>\n\n\n\n<p>Once a company qualifies, businesses are eligible for up to 15% of a VCT fund. Each business can accept up to \u00a35m in VCT investments per annum or \u00a312m in total VCT investments. Knowledge-intensive companies can accept a total of \u00a320m.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-are-the-benefits-of-vcts\"><strong>What are the benefits of VCTs?<\/strong><\/h2>\n\n\n\n<p>As Paul Latham, managing director of Octopus Investments, stated<u>:<\/u> \u201cVCTs play an active role in supporting the next generation of UK businesses, as well as giving investors the opportunity to access some of the UK\u2019s most exciting growth companies.\u201d<\/p>\n\n\n\n<p>For businesses, VCT investments can significantly accelerate a company\u2019s growth. In fact, most companies that received a VCT investment experienced an average revenue increase of \u00a312.7m, achieved an average turnover growth of 183%, and on average hired 51 new staff members.<\/p>\n\n\n\n<p>Clearly, investing in VCTs is a fantastic way to support British small and medium-sized enterprises (SMEs).<\/p>\n\n\n\n<p>Supporting unlisted SMEs has a number of benefits. For example, as VCT-qualifying SMEs aren\u2019t listed on the London Stock Exchange, they have a greater potential for quicker growth than already established companies. However, this also means, on the other hand, VCT investments are also extremely risky.<\/p>\n\n\n\n<p>To further encourage investors\u2019 appetite, the UK government provides VCT investors with venture capital tax relief. Investments under \u00a3200,000 provide VCT tax benefits such as income tax relief, tax-free dividends and tax-free capital gains.<\/p>\n\n\n\n<p>As long as you keep your VCT investments for five years, you can claim 30% upfront income tax relief although the amount detracted from your taxes can\u2019t exceed the amount due. In addition, if you receive dividends from your VCT, you don\u2019t need to pay taxes or claim them. Plus, when you\u2019re ready to move on, any profit you make from selling your venture capital trust won\u2019t be taxed.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-are-the-disadvantages-of-venture-capital-trusts\"><strong>What are the disadvantages of venture capital trusts?<\/strong><\/h2>\n\n\n\n<p>While VCTs hold a number of benefits for unlisted SMEs and investors, there are also some disadvantages. Businesses must be prepared to lose some control over their company, as the investing VCT will want results.<\/p>\n\n\n\n<p>To achieve these results, they will want some say over the direction of the company. To continue receiving VCT investments, businesses must also maintain their qualifying status which can prove challenging.<\/p>\n\n\n\n<p>For investors, the biggest disadvantage of VCTs is the fact that they are inherently high risk. While you could financially benefit if the companies you\u2019ve invested in thrive, the survival rate of new businesses is extremely low. If the company you\u2019ve invested in doesn\u2019t survive, there\u2019s no guarantee you\u2019ll get your money back.<\/p>\n\n\n\n<p>VCTs are also a long-term investment as you can only benefit from Venture Capital Tax Relief if you maintain your investment for five years. If you exit the scheme before this period, you\u2019ll need to repay HMRC any income tax relief previously claimed. It can also be extremely difficult to find a buyer and you may need to accept a lower price than the net asset value.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-to-choose-the-right-vct-investment\"><strong>How to choose the right VCT investment<\/strong><\/h2>\n\n\n\n<p>Both SME owners and potential investors should closely consider if a VCT is the right choice for them. The benefits and disadvantages will vary depending on your specific circumstances.<\/p>\n\n\n\n<p>Before making any decisions, we suggest reading our guide on <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/right-venture-capital-trust\/\">how to choose the right VCT<\/a>. You may want to consider if you\u2019re better suited for the <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/venture-capital-trusts-vs-enterprise-investment-scheme\/\">Enterprise Investment Scheme<\/a> (EIS) than a VCT.<\/p>\n\n\n\n<div class=\"single-cta gated-content\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Guide to alternative funding<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Discover 10 sources of funding for your business and how to apply in our essential guide for startups and small businesses.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-e916b111-3801-47fd-9653-a337d2158774\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Get your free guide<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t<div class=\"single-cta__downloads\">\n\t\t\t\t\t\n\t\t\t\t\t1,457 readers have downloaded this guide\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"780\" height=\"500\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2017\/08\/government-funding-available-for-small-businessCTA.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2017\/08\/government-funding-available-for-small-businessCTA.jpg 780w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Join more than 500,000 UK readers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-b1a63862-3fa0-4a5e-bb67-c76b88bbc6b8\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe now<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1073797282-1-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Venture capital trusts have only been in existence since 1995 and many people still don\u2019t understand them. A VCT or venture capital trust is a closed-end collective investment scheme which was introduced by the UK government to encourage investments in new businesses. In return for backing small companies, investors get highly efficient VCT tax benefits. [&hellip;]<\/p>\n","protected":false},"author":346,"featured_media":4328,"menu_order":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"sage_hide_published_date":false,"sage_hide_read_time":false,"sage_hide_share_buttons":false,"footnotes":""},"categories":[6],"tags":[18],"business_type":[4,3],"lilypad":[],"context":[],"industry":[],"persona":[71,73,74],"imagine_tag":[96,109],"coauthors":[353],"class_list":["post-4953","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-alternative-finance","business_type-small-business","business_type-medium-sized-business"],"sage_meta":{"region":"en-gb","author_name":"Stacey McIntosh","featured_image":"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2018\/05\/SAGE_ATL_CVB_HEROIC_02_0446_All-Uses.jpg","imagine_tags":{"96":"Medium businesses","109":"Small business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/4953","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/346"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/comments?post=4953"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/4953\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media\/4328"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=4953"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/categories?post=4953"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=4953"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/business_type?post=4953"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/lilypad?post=4953"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/context?post=4953"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/industry?post=4953"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/persona?post=4953"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/imagine_tag?post=4953"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/coauthors?post=4953"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}