HMRC have set up several schemes designed to encourage investors to support smaller companies that may be a higher risk than traditional investments. The tax incentives for these schemes are generous.

A Venture Capital Trust (VCT) is a form of publicly traded private equity, in other words a way for a company to get investment without listing on the London Stock Exchange. The VCT will be managed by individuals who choose companies to invest in, with a minimum of 70% of the VCT’s assets invested in ‘qualifying’ holdings. The remaining 30% may be invested in government securities, Gilts or blue-chip shares.

As an investor you will benefit from income tax relief at a rate of 30% of the value of shares subscribed in a VCT (up to a maximum of £200,000) during the tax year. You will also be exempt from paying income tax on dividends from ordinary shares and will receive disposal relief on any capital gains when you dispose of your VCT shares.

Another investment you may consider is an Enterprise Investment Scheme (EIS). This scheme is also designed to encourage investments into small unquoted companies carrying on a qualifying trade in the UK, and may also be a higher risk investment.

Tax relief is also available at 30% on contributions into the scheme and there is a tax deferral on gains from the investment in an EIS. So, if in the current tax year you are set to realise significant gains on other investments, you can defer the Capital Gains Tax that is due on those gains by reinvesting the cash in an EIS.

The Seed Enterprise Investment Scheme (SEIS) was introduced to kick start the UK economy by offering generous tax incentives to investors in start up companies. This is similar to the EIS scheme, however instead of deferring the tax due on gains, you can receive tax relief (meaning the tax will never be payable) on half the amount of your gain re-invested in SEIS shares (subject to £100,000 investment limit).

While we cannot provide specific guidance or advice relating to the various investment products available to you, we can provide helpful advice on how your investments and gains will impact on your tax liability. When seeking investment advice, it is highly advisable to find an FCA regulated Independent Financial Advisor – we can recommend someone if you wish.