VCT & EIS

Venture Capital Trusts (VCTs) were first established by the Government in 1995 to encourage investment in vibrant smaller companies. VCTs have traditionally offered lucrative tax benefits to tempt investors; the ability to defer a capital gains tax (CGT) liability, 20% income tax rebate on initial investment and no tax to pay on income or gains from the trust. However falling stockmarkets between 2000-2003 means fewer investors have needed to shield capital gains from the taxman.

As the chart below shows, this led to a big fall in VCT demand post 2001.

VCT Demand

VCTs have been given a new lease of life thanks to the introduction of new tax benefits on 6 April 2004 . The ability to defer capital gains was abolished in favour of 40% income tax relief , available for two tax years. This has led to soaring demand and sales for the tax year ending 5 April 2005 hit £500 million - the most popular year yet for VCTs.


It is important not to allow tax incentives to override sound judgement and you should understand the risks involved, but Venture Capital Trusts do represent an excellent opportunity for many investors. As ever, careful investment selection is vital, as is sensible asset allocation. Trusts with poor management and high charges could soon swallow up the tax benefits on offer, whilst poor asset allocation might leave you over-exposed to smaller companies.


Hirst & Company Limited analyse hundreds of tax shelter schemes and believe our research in this area to be the best. We can help you select the better quality VCTs, understand how much it may be prudent to invest and save you money by discounting the standard commission terms.

Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme is a UK tax incentive scheme designed to encourage investors to invest in unquoted companies. The benefits are:

  1. Income tax relief at 20%: so if you invest £10,000, the taxman gives you £2,000 back.
  2. CGT relief: provided you hold your investment for five years, any gains subsequently made are free of capital gains tax.
  3. Tax relief on losses: if your EIS investment is a disaster, you can set the losses off against gains made in the tax year in which you incur losses.
  4. Rollover relief: if you use the proceeds from selling shares in Company A to invest in Company B, and Company B is an EIS-qualifying company, you won't have to pay tax on the gains made from Company A until you subsequently dispose of Company B's shares. i.e. your gain is rolled over.

The maximum amount you can invest in an EIS is £200,000 annually. Similar tax breaks are available from investments in Venture Capital Trusts (VCTs). Essentially, these are investment trusts that invest in small unquoted companies. As with EIS investments, there are many rules, which, if broken, will invalidate the tax advantages.

The risks associated with EIS companies are high and you should take prof