VCT and EIS tax relief explained
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Quick answer: Venture Capital Trusts and Enterprise Investment Schemes offer upfront income tax relief of 30% on qualifying investments, but they are high-risk, illiquid and have strict holding periods to keep the relief.
VCTs and EIS investments support early-stage UK companies. HMRC grants generous tax reliefs to compensate for risk, but rules are complex and relief can be clawed back if you sell too soon. This guide explains eligibility, limits and pitfalls.
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Read the full investing & ISAs guide →Primary source: www.gov.uk/government/publications/venture-capital-schemes-income-tax-relief
How the relief works
You claim income tax relief through your Self Assessment return after subscribing for new VCT or EIS shares. Relief reduces your tax bill rather than giving a cash refund in most cases.
Relief is only available on new shares issued by approved schemes, not on second-hand VCT market purchases in most circumstances. Buying VCT shares on the secondary market does not qualify for upfront income tax relief.
Risk and liquidity
These investments back small, unlisted or AIM-listed companies that can fail entirely. You may not be able to sell when you need cash — VCT secondary markets exist but are thin.
The FCA classes many offers as high risk. Diversification and understanding each company's business are essential before relying on tax relief.
Loss relief and inheritance tax
EIS losses may qualify for loss relief against income or capital gains if the company fails, subject to HMRC rules. Some EIS shares may qualify for Business Relief after two years for IHT purposes.
Rules differ between EIS, SEIS and VCT — check the specific scheme documentation and HMRC guidance before investing. SEIS offers higher relief on smaller investments but carries even higher failure risk.
Common questions
Can I hold VCTs in an ISA?
No. VCT shares cannot be held in ISAs, though EIS investments are also outside standard ISA eligibility.
What if I sell before the minimum period?
HMRC can claw back income tax relief proportionally if you dispose of shares before the required holding period.
Are dividends from VCTs taxed?
Dividends from approved VCTs are generally exempt from income tax if you hold the shares within the five-year window.