September 2023


Investments into VCTs are usually made by taxpayers in the higher or additional tax brackets, earning over £100,000 annually. The typical VCT investor often faces limitations on pension contributions, like the tapered annual allowance, but still wish to benefit from tax relief to reduce their Income Tax liability.

If you are considering a VCT investment there are several key benefits including tax relief, which are explored further below.

speak to an adviser

Please contact us to discuss your specific situation

Income Tax Relief

You are able to claim 30% tax relief on investments valued at up to £200,000 each tax year, so long as the shares are then held for at least five years.

Much like Pensions, VCT investments act as a tax reducer. In order to benefit from the tax relief, you must have an Income Tax bill at least equivalent to tax relief received from the VCT. For example, if investing £100,000 into a VCT in any tax year, with the aim of receiving £30,000 tax relief, you must have a tax bill equivalent to £30,000 or more in order to receive the full relief.

Unlike Pensions, qualifying income for VCT investment is not restricted to salary and bonus. It can also take into account rental income, taxable bond withdrawals and dividends drawn from your company.

Capital Gains Tax

There is no Capital Gains Tax on the profit earned due to an increase in the share price of a VCT.


Dividends received are exempt from taxation and will usually be directly allocated to you, but there is also an option to set them for automatic reinvestment within the VCT. Opting for this method brings additional tax incentives, leading to an extra 30% tax relief on reinvested dividends.

Let’s consider the same example mentioned earlier: you invest £100,000 into a qualifying VCT, obtaining 30% tax relief, which is £30,000. In the following year, the fund is still valued at £100,000 and distributes dividends totaling 5% of the overall value, resulting in a payment of £5,000. Should these dividends be set for automatic reinvestment, an additional 30% tax relief would be applied to the reinvestment, amounting to £1,500.

Reinvestment For Future Growth

Having been invested in a fund for 5 years, you are able to sell the VCT, retaining the original amount of tax relief. The proceeds can then be paid into your bank account, or used again to invest in another VCT. The reinvestment can allow for a further 30% tax relief.

We demonstrate the power of reinvesting VCT investments below and the tax relief available.

Please note, the below illustrates static values on reinvestment and does not take into account the heightened volatility inherent within smaller company investments or that buyback requests aren’t guaranteed to be accepted; you may get back less than you paid in.

YearNew Money InTax ReliefNotes
6£30,000Reinvest £100,000 from year 1
7£30,000Reinvest £100,000 from year 2
8£30,000Reinvest £100,000 from year 3
9£30,000Reinvest £100,000 from year 4
10£30,000Reinvest £100,000 from year 5

If this plan is followed for 10 years, £500,000 will be required to fund 10 years of £100,000 VCT investments, but in this case c. £300,000 tax relief can be attained, equating to a total tax relief level of 60%. From year 11, the reinvestment cycle can continue or VCT investments can be liquidated on an annual basis.

Generate Tax-Free Income

Many of the VCT returns are paid annually via dividend payments. These payments are tax-free and can be added towards an individual’s income in order to add another tax-efficient source of income.

Growth Potential

By investing in well-known & large VCTs, investors invest in dozens, if not hundreds of smaller, unquoted companies. These have the potential for high capital growth. However, smaller companies sometimes follow different investment cycles than larger companies and are generally more susceptible to a deteriorating economy. Smaller companies are often more vulnerable to individual factors than larger companies with more diversified revenues.


It is important to note there are  risks associated with investing in VCTs, as these investments carry higher levels of volatility than traditional investments.

We recommend spreading VCT investments across multiple providers annually to increase diversification. At Bentley Reid, we conduct research into the UK VCT market and have preferable pricing terms with several established and experienced fund managers who specialise in this space.

We recommend that you have a discussion with one of our wealth managers to determine whether VCT investment is suitable for you and aligns with your future objectives. Due to the increased risk linked with VCT investments, a wealth manager should assess your entire financial situation when deciding whether such an investment is the appropriate course of action.

The article is for information and does not constitute financial advice.  Any investment’s value can go down, as well as up.


The above serves as a reminder of the opportunities available surrounding business planning and pensions, However, this is also a highly technical area and you should seek out experienced, professional guidance. At Bentley Reid our Wealth Managers have experience with complex UK pension matters and can work with you to understand your position and provide clear advice.

We’d love to hear from you and by contacting Mike Winstanley or clicking the link below you can arrange a consultation with us. By using Bentley Reid you can be confident you will receive:

✔️ A Pensions expert with considerable experience advising on complex pension, business and income planning for higher earners.

✔️ Investment advice and cash flow planning to complement the objectives and time horizons of all SSAS members.

✔️ Expert advice delivered in a clear and concise way that is easy for you to understand.

✔️ Manage other potential liabilities including tax on withdrawal and your individual risk levels and capacity to accept investment loss.

✔️ Peace of mind that a professional is guiding you through the process.

Book In For Your Free Initial Consultation

Disclaimer: The content of this communication is for information purposes only. Bentley Reid believes that, at the time of publication, the views expressed and opinions given are correct but cannot guarantee this and viewers intending to take action based upon the content of this communication should first consult with the professional who advises them on their financial affairs. Neither the publisher nor any of its subsidiaries or connected parties accepts responsibility for any direct or indirect loss suffered by a recipient as a result of any action or inaction, in reliance upon the content of this communication.

Download Our App

Download and use the Bentley Reid App, available on Apple and Android devices.

app store
Play Srore
google play qr code