Actual net cash outlay 70 pence in the £1
‘Front-end’ tax relief is available at 30% of the cost of new ordinary shares subscribed for up to the ‘permitted maximum’ of £200,000 to be set against the individual’s income tax liability for the year of assessment in which the shares are issued. The annual limit applies to all the taxpayer’s acquisitions in VCTs in the tax year concerned, and shares acquired earlier in the tax year count towards the permitted maximum first.
The maximum tax reduction in an individual’s income tax liability in any one year is therefore £60,000 providing a sufficient income tax liability exists to cover it.
If Bernard subscribed £20,000 for shares his maximum income tax relief would be £6,000. If his actual liability in that year before any VCT tax relief is £5,000, then that is the relief he will receive. The difference of £1,000 cannot be set off against the income tax liability of any other year.
No Capital Gains Tax to pay
You won’t have to pay any Capital Gains Tax on gains from investments in Venture Capital Trusts and there is no minimum holding period for this rule to apply. But if your VCT investments make a loss, you can’t use this to reduce your Capital Gains Tax bill from other investments.
Dividends from your VCT shares are not subject to income tax
Dividends received from VCT shares are exempt from income tax (‘dividend relief’) in respect of shares acquired within the ‘permitted maximum’ of £200,000. These dividends do not have to be included in the tax return.