Investment details
£3k£200k
0%10%
520
Total tax saved over the holding period
£0
Upfront 30% income tax credit + tax-free dividend stream + tax-free disposal
£0Upfront 30% income tax credit
£0Dividend tax saved over holding period
£0Effective net cost after upfront relief
The three VCT tax reliefs
- 30% income tax relief on subscription up to £200,000 per tax year — deducted from your income tax liability for the year of investment. Cannot exceed the income tax actually owed.
- Tax-free dividends from the VCT for as long as you hold the shares — these don't even count toward your Dividend Allowance and don't appear in income for the Personal Allowance taper.
- Tax-free disposal — capital gains on selling the VCT shares are exempt from CGT, regardless of size.
To keep the upfront relief, you must hold the shares for at least 5 years from the original subscription. Selling earlier triggers a clawback of the 30% income tax relief proportional to the shortfall.
VCTs vs EIS — which to use when
| Feature | VCT | EIS |
|---|---|---|
| Upfront income tax relief | 30% | 30% |
| Annual subscription cap | £200,000 | £1m (£2m for KIC) |
| Holding period for relief | 5 years | 3 years |
| Dividend tax | Tax-free | Taxable normally |
| CGT on disposal | Exempt | Exempt after 3 years |
| CGT deferral on existing gains | No | Yes |
| Loss relief if company fails | No (VCT diversifies) | Yes |
| Inheritance Tax (Business Relief) | No | After 2 years |
VCTs are easier to access (you buy units in a listed VCT vehicle, like a fund) and provide diversification across many small companies. EIS investments are direct into single companies, more concentrated risk, but with loss relief and IHT relief that VCTs lack.
Common VCT mistakes
- Selling before 5 years. The 30% upfront relief is clawed back proportional to the early sale.
- Buying secondary-market VCT shares (rather than new subscriptions). Only new subscriptions get the upfront 30% relief — secondary purchases get the dividend and CGT reliefs but not the income tax credit.
- Forgetting the £200,000 annual cap. Investments above this cap don't attract the upfront relief.
- Treating the 30% relief as risk-free return. VCT shares can fall in value; the 30% can be eaten through if the underlying companies underperform.
- Failing to plan around the income tax liability. The relief is capped at your income tax for the year; if you have insufficient tax to absorb the full 30%, you waste relief.
Related calculators
EIS / SEIS calculator · Dividend calculator · 60% tax trap guide · CGT shares calculator