A Venture Capital Trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies and capital gains for investors. They were first introduced by the Conservative government in the Finance Act, 1995 to encourage investment into new UK businesses.
. But in fact, VCTs also offer long term tax advantages since no tax is payable on either the income from dividends or any capital gains made on a VCT - whether you bought it new or 'second hand' through a broker.
These trusts were for some years used as a device for deferring Capital Gains Tax liabilities, and therefore many of them put a high priority on returning funds to shareholders, rather than growing the net asset value. If a VCT sells one of its best performing investments, quite often the majority of the gain will be paid out to shareholders as a dividend, so that the dividend history can be quite uneven, compared to the more regular progression of dividends from a trading company or a regular investment fund.
