VCTs: a powerful way to help clients pay less income tax 

On 30 October, the new Labour government delivered its maiden Budget which set out a sustained increase in taxation, spending and borrowing. According to the Office for Budget Responsibility, tax revenues in the UK are now set to increase to a historic high of 38% of GDP by 2029-301. But what could this mean for higher-rate taxpayers? 

Government to raise taxes by £40 billion annually  

On 30 October, new Chancellor Rachel Reeves announced that the government will increase taxes by £40 billion annually, making the most substantial tax increases in three decades. The decision follows the Chancellor’s recent revelation of a £22 billion ‘black hole’ in the UK’s finances. Reeves stated “this is the Budget that is needed to wipe the slate clean and to put our public finances on a firm trajectory.” 

In line with campaign promises, Reeves confirmed that there would be no increase in income tax, National Insurance, or VAT for individual taxpayers. Instead, the largest tax increases will affect businesses and high-income earners. This has included an increase on employer’s National Insurance contributions and an immediate increase in capital gains tax, with the higher rate rising from 20% to 24%. 

Furthermore, Reeves confirmed that while the freeze on income tax thresholds will not be extended beyond 2028, it will remain in place until then. This means that more people will pay higher rates of tax as their salary increases and they move into higher tax bands, effectively creating ‘fiscal drag’. From 2028-29, income tax thresholds will be uprated in line with inflation once again.  

What can clients do to pay less tax? 

If you have higher-rate clients who would like to reduce some of their income tax burdens – whether through their salary, rental income or portfolios of assets – it’s worth considering a venture capital trust (VCT). VCTs were introduced in 1995, and over the last three decades, they have helped thousands of UK investors to invest in ambitious high-growth companies while also claiming valuable tax reliefs, namely: 

• Income tax relief: Clients can claim up to 30% upfront income tax relief on the amount invested, provided shares are held for at least five years.
• Tax-free dividends: Any dividends paid by the VCT are tax-free.
• Tax-free growth: Any growth in the value of shares is free of CGT

Claiming tax relief on earned and unearned income 

As a reminder for clients, earned income is essentially the income received through salary, wages and bonuses, or money made from self-employment. By contrast, unearned income includes things like investment or rental income. 

Therefore, clients should be reminded that while a VCT gives them the ability to claim upfront income tax relief, the relief claimed can be applied to all forms of income tax paid, including tax on dividends and rental income. This can be extremely useful in cases where clients own a property portfolio or large share portfolio and, therefore, face a potentially higher income tax bill as a result. 

How clients claim income tax relief on a VCT investment 

Once the VCT investment has been made, the client receives two certificates in the post. Their VCT tax certificate allows them to claim income tax relief from HMRC, and their VCT share certificate should be held onto until they choose to sell their VCT shares. 

Clients should be made aware that there’s a £200,000 maximum VCT subscription limit for claiming income tax relief in a single tax year, which means a maximum of £60,000 income tax relief can be claimed each tax year. However, the amount of income tax relief is directly linked to their income tax liability. In other words, they can’t claim more tax relief than the amount of income tax they owe. 

The Triple Point Venture VCT 

With more clients likely to have concerns about higher taxes in the months ahead, especially now the October Budget has been delivered, now could be a good time to start discussing tax-efficient investments that give them the opportunity to lower their tax bill. 

Now in its seventh fundraising year, the Triple Point Venture VCT is open for investment through a new share offer. It gives investors access to a portfolio of 50 ambitious early-stage companies while also claiming up to 30% income tax relief. It could prove to be a really useful way of helping clients invest for the future while also keeping more of their hard-earned income right now. 

Find out more about the Triple Point Venture VCT 

Important information 

This article is an advertisement for the purposes of the Prospectus Regulation Rules and is not the prospectus. The Triple Point Venture VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status. Investors should only subscribe for shares on the basis of information contained in the Prospectus which is available via the Documents section of the website. This article has been approved by Triple Point Administration LLP, which is authorised and regulated by the Financial Conduct Authority.

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