Finance Act originally introduced the legislation governing the. This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes.
Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent.
This means that no tax liability falls on the trustees. Skip to main content. Already a user? Sign in. Venture capital trusts income tax relief Produced by Tolley Venture capital trusts income tax relief Produced by Tolley. The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering: Venture capital trusts income tax relief Income tax relief Qualifying conditions Amount of income tax relief Making a claim for tax relief Cash flow advantage Tax-free dividends Capital gains tax exemption Capital gains tax deferral Claw back of income tax relief More Calculation of the income tax relief withdrawn Tax assessment Less The time limit for claiming is five years from 31 January following the end of the tax year in which the shares were issued.
A disposal of some of the shares would trigger a proportion of the deferred gain becoming assessable. It is therefore possible for an individual to invest in a company which he already owns or controls.
For investors to be able to claim, and keep tax reliefs, the issuing company has to meet the qualifying rules as referred to in the introduction throughout the three-year period. Note however that the company may subsequently become quoted without investors losing relief, but only if there were no arrangements for it to become quoted in existence when the shares were issued.
Tax reliefs are only available to individuals aged 18 years or over and not to trustees, companies or others who invest in VCTs. CGT deferral relief, previously available, was abolished in respect of shares issued after 5 April In the budget, the government announced an amendment to the VCT legislation to ensure that from 6 April , notwithstanding the general time limits for making assessments to recover tax, HMRC can withdraw tax relief if VCT shares are disposed of within five years of acquisition.
A further announcement in the budget was that the government were to prevent VCTs from returning capital that does not relate to profits on investments within three years of the end of the accounting period in which shares were issued to investors.
This took effect in respect of shares issued on or after 6 April The annual limit applies to all the taxpayer's acquisitions in VCTs in the tax year concerned, and shares acquired earlier in the tax year count towards the permitted maximum first.
The shares must be held for at least five years and throughout this time carry no present or future preferential rights to dividends or to the VCT's assets on winding up and no present or future rights to be redeemed.
Tax relief can be claimed either with the tax return see page Ai 2 or as a standalone claim. There is no set form for a standalone claim. These dividends do not have to be included in the tax return.
A disposal between spouses or civil partners who are living together does not give a rise to a withdrawal. The front-end income tax relief to be withdrawn is the smaller of:. Front-end relief may also be withdrawn where a VCT loses its approval. Investors are now prevented in certain circumstances from refreshing income tax relief on investments into VCTs by disposing of VCT shares and reinvesting the proceeds in new shares.
The measure does not affect subscriptions for shares where the monies being subscribed represent dividends which the investor has elected to reinvest. The restrictions affect claims to relief for investment in VCT shares, by reference to shares issued on or after 6 April As for 'dividend relief', CGT relief is available for both newly issued shares and second-hand shares.
This is a cumulative limit, not an annual limit. Exempted CGT on gains realised from disposals of assets in , where the gains were reinvested in shares that qualified for SEIS income tax relief. These schemes offer significant tax incentives to investors willing to take the investment risk involved with unquoted trading businesses. That risk is mitigated with an EIS investment due to the ability to obtain income tax relief for capital losses.
For all schemes, your shares must be newly issued and paid for in full in cash to be eligible for Income Tax relief. However, the rights to receive dividends cannot be allowed to accumulate or allow the dividend to be varied. For SITR the shares must not have the right to a dividend of a fixed amount or more than a reasonable commercial rate. You cannot use a loan to buy the shares if it was only approved or the terms were only approved for the purchase of the shares.
For EIS , you will not be able to claim Income Tax relief if you received the new shares and you already hold other shares in the company that were not either shares:. You can get tax relief using the SITR scheme if you loan money to a social enterprise. The loan or debt must not be secured on any assets and, if interest is charged, this must be at a reasonable commercial rate. There must not be an arrangement for any part of the loan to be repaid within 3 years of the investment. If you make a single payment, the investment begins when the company issues you with a confirmation of the debt known as a debt instrument, like a debenture.
If the company does not issue a debt instrument the investment begins when the investment agreement takes effect. If the investment involves several payments then each investment begins when you pay each amount to the social enterprise. You will lose tax relief if during this time:. For EIS this applies for 12 months before the share issue.
You need to tell HMRC within 60 days of any of these occurring. You must keep your whole investment in a VCT for 5 years. For VCTs , you can claim relief up to 4 years after the end of tax year of assessment in which you made the investment.
If you want to claim for the previous tax year, make your claim on your Self Assessment tax return. For more information see the helpsheets for:. If the shares were issued in a different tax year, or you are claiming for capital gains deferral relief, you need to complete the claim part of the certificate.
You should claim Income Tax relief in your Self Assessment tax return for the tax year in which the shares were issued. You do not have to wait until you send in your tax return to get the benefit of the relief.
For VCTs, when a company is deemed to be knowledge-intensive they can:. While we cannot advise you which to choose, we can outline the types of investors that might prefer the various defining features of EIS or VCTs. EIS offers the potential for a larger, but longer-term return on investment, but will not pay regular dividends.
With this in mind, the shorter three-year holding period on EIS shares means you start benefiting from tax reliefs faster. In short, EIS suits investors:. When you invest in a VCT, you have the potential to receive regular tax-free dividends if the portfolio does well, meaning it can function as a source of income. You do have to wait 5 years before investments qualify for tax relief however. VCTs are more suited to investors who:. More about VCT. The information on this page does not constitute financial advice and is provided on an information basis only, based on research using the following sources:.
View our EIS fund. Weighing up the pros and cons of each. The tax reliefs on offer. Claiming tax relief. Which is right for you?
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