ACCA ATX ^UK Syllabus A1. Income tax - VCT Investment Relief - Notes ^{2 / 2}

If an individual invests in Venture Capital Trust shares, they can reduce their tax liability by a % of their investment.

There are conditions to be a qualifying company and on the reduction of the I.T. Liability.

Note: the conditions that a company must meet in order to qualify as a VCT company are not examinable.

In the tax year in which investor subscribes for the new issue of shares he can claim to reduce his income tax by VCT relief at 30% (tax reducer).
The maximum VCT relief available is £60,000 as a tax deduction, therefore even if more than (£200,000*30%=£60,000) was invested - the maximum of £60,000 would be relief.
Dividends received by investor from VCT are exempt from income tax if they relate to shares acquired within the £200,000 permitted maximum.
If investor sells the shares within five years he must repay this VCT relief to HMRC.

Tom subscribes for 10,000 new ordinary shares in a venture capital trust (VCT) on 30 June 2024 for £30,000.

How much can he reduce his income tax liability by?

Solution
Tom can reduce his income tax in 2024/25 (the tax year he buys the VCT shares) by VCT relief at 30%.
Tom can reduce his income tax by £9,000 (30% * 30,000) in 2024/25.
Tom must repay the income tax saving to HMRC if he sells the VCT shares within five years.