Venture capital schemes are a type of tax relief designed to help investors invest in promising companies, social enterprises, and venture capital trusts that are not listed on the stock exchange.
What is Venture Capital Tax Relief?
VCT gives you up to 30% income tax relief for investments in qualifying venture capital trusts. To qualify for this tax relief, you must hold your VCT shares for at least 5 years from the date of purchase. Additionally, there are limits on how much you can invest in a single VCT and how much you can claim back in tax relief each year. These limits are based on your income and the overall value of your investment portfolio.
How does venture capital tax relief work for investors?
As an investor using venture capital schemes, you may be able to take advantage of a few tax benefits, including income tax relief on investments, capital gains tax deferral (use our capital gains tax calculator to find out how much profit you'd make based on your investment) or exemption, and other perks that can help you grow your portfolio. To qualify for venture capital tax relief, it is important to understand the specific requirements of each scheme and how they can benefit your investment strategy. With careful planning and knowledge of the venture capital tax landscape, you can make the most of these tax breaks to maximize your potential returns.
What are the conditions to claim tax relief for VCT?
Enterprise Investment Scheme (EIS)
- The maximum investment you can claim on relief is £1m, it is £2m if half of it is already invested in companies that carry out business in intellectual property or that employees carry out research for at least 3 years.
- The company will be eligible to raise up to y£5 million each year, and a maximum of £12 million in the company’s lifetime.
- Personal Capital Gains Tax relief will be available on the initial 100% of the investment made by an investor.
- Investors don't get tax relief on income from dividends
Seed Enterprise Investment Scheme (SEIS)
- Companies can raise up to £150,000 and is more suitable for companies having a gross asset of less than £200,000 at the time of the issue of shares.
- An investor can claim up to £100,000 as relief against income tax and capital gains tax relief of 50% of investment (maximum £50,000)
- Investors don't get tax relief on income from dividends
Social Investment Tax Relief (SITR)
- You can claim up to £1m
- The company must be a Community Interest Company, Charity, or Community Benefit Society, with an asset lock
- You don’t get tax relief on income from dividends
What Type of Tax Relief I Can Claim?
If you make an investment in a venture capital fund, you may also be eligible for capital gains tax deferral or exemption. This allows you to hold your investment for at least 3 years without paying any capital gains tax on the increase in value of your venture capitalist holdings.
However, there are certain conditions that must be met to qualify for this type of tax relief, including limits on the amount of venture capital funding you can invest in a single venture capital fund.
Whether you are an investor looking for new investment opportunities or a venture capitalist seeking tax relief, it is important to understand the benefits and limitations of venture capital schemes. With careful planning and research, you can take full advantage of this unique tax relief.
When you can't claim venture Capital Gains Tax relief?
There are certain situations in which venture capital relief may not be available, including if you have already claimed venture capital tax relief on a previous investment. Additionally, there are limits on the amount of venture funding you can invest in a single venture capitalist fund, so it is important to carefully review the terms and conditions before making any investments using venture capital schemes.
Sum Up
If you are considering venture capital investment, it is important to consult with a tax professional to learn more about the specific requirements and benefits of venture capital tax relief. With the right planning and knowledge, you can make the most of venture capital schemes to grow your portfolio and save on taxes along the way.
