Resources List
UNDER Venture Capital Trusts
Understanding the risks
Every investment carries risk, and VCTs are no different. Given that they focus on small, unlisted, or AIM-listed companies, VCTs are considered high-risk investments. Below is an overview of the key risks, but it’s important to consult the specific VCT’s product materials and seek advice from a financial professional to understand how these risks might apply to you.
Your capital is at risk
The value of your VCT investment, along with any income it generates, can fluctuate. You may not recover the full amount of your initial investment.
High-risk nature of smaller companies
VCTs target smaller companies, which are often not listed on the main London Stock Exchange. Shares in these companies tend to experience more significant price swings compared to those in larger, established firms. Additionally, smaller businesses have a higher chance of failure.
A long-term commitment
VCT shares should be held for at least five years. Selling your shares before this period could result in the need to repay any upfront income tax relief claimed from HM Revenue & Customs (HMRC).
Limited market for VCT shares
Unlike shares in larger companies, there isn’t an active market for VCT shares. This means it may take time to find a buyer, and you might have to sell for less than the net asset value (NAV) of the VCT. See our FAQs for more details on selling VCT shares.
Changing tax rules
The tax benefits associated with VCTs, as outlined in this guide, are correct at the time of publication. However, tax rates, benefits, and allowances can change, and the advantages you receive will depend on your personal circumstances. HM Treasury may also alter the definition of VCT-qualifying investments in line with policy changes, potentially affecting future investments.
Potential loss of VCT status
There is no certainty that a VCT will retain its qualifying status. Should it lose this status, the associated tax advantages will be withdrawn. If this occurs within five years of your investment, you will be required to repay any income tax relief you have claimed.