Jasmine Birtles
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How to Invest in Venture Capital Trusts (VCTs)
Moneymagpie Team
25th Sep 2025
- Venture Capital Trusts (VCTs) are a type of advanced investment fund that allow you to put your money behind new businesses. This investment comes with potentially high returns and tax-perks.
But, the higher the reward, the higher the risk. VCTs are not for everyone. If you’re wondering whether they could fit into your investment strategy, this guide breaks down what they are, the pros and cons, and how to invest.
What are Venture Capital Trusts (VCTs)?
A Venture Capital Trust (VCT) is a type of investment trust listed on the London Stock Exchange. It pools investors’ money to back small, early-stage UK businesses- companies that are usually high-growth but high-risk.
Think of a VCT as a basket of startups. Instead of betting on just one business, your money is spread across many.
Don’t confuse a VCT with a Venture Capital Scheme (VCS):
- A VCS = you invest directly into one unlisted company.
- A VCT = you buy shares in a trust that spreads your money across lots of these companies, and it’s HMRC-approved.
Why Invest in VCTs?
Because sometimes, small companies turn into big winners. Amazon, Google, and Facebook all started small. While most won’t reach those heights, VCTs give you exposure to the “next generation” of UK businesses.
And, VCTs come with tax perks. The Government wants investors to support early-stage companies, so it offers generous tax relief.
- 30% income tax relief on investments of up to £200,000 per tax year (if held for at least five years).
- Tax-free dividends (any payouts you receive from the VCT are tax-free).
- No Capital Gains Tax when you sell your VCT shares.
In other words, VCTs are one of the few places left with sizeable tax perks for higher-rate taxpayers.
The downsides of VCTs
Before you get too excited, remember: VCTs are risky, illiquid, and expensive compared to other investments.
Here are the main drawbacks in 2025:
- Risk of failure: VCTs invest in tiny, unproven businesses (often on the AIM or unlisted). While some could soar, many fail.
- Five-year lock-in: You must hold for five years to keep your tax relief. If the value drops, you can’t just cut your losses without penalty.
- High charges: Management fees are steep (often 2–3% annually, plus performance fees). Compare that to an ETF at 0.2–0.5%. Your returns need to be strong just to cover costs.
- Hard to sell: VCT shares can be difficult to offload quickly. Most trusts run “buyback” schemes, but usually at a discount.
- Mixed performance: While some VCTs have built solid long-term records, many still lag behind simpler investments like index funds.
Who are VCTs for?
VCTs are generally best for:
- Experienced investors who already max out their ISA and pension allowances.
- Higher-rate taxpayers looking for additional tax-efficient income.
- People comfortable with long lock-ins and high risk.
They’re not ideal for beginners, or for anyone needing liquidity.
How do you invest in VCTs?
You can’t invest directly without going through an authorised startup investment platform or adviser. Your main routes are:
- Through a financial adviser: They’ll recommend suitable VCT offers and handle paperwork.
- Through stockbrokers or platforms: Many online brokers (like Hargreaves Lansdown or Interactive Investor) now allow applications online.
Types of VCTs
- AIM VCTs: Invest in companies listed on the Alternative Investment Market.
- Generalist VCTs: Spread across a wide range of unlisted companies in different sectors.
- Specialist VCTs: Focus on one sector (e.g. biotech, media).
Most VCTs launch fundraising offers with closing dates, so timing matters. Initial fees are usually 2%–5%.
Step-by-step: How to invest online
- Research current VCT offers (check providers like Wealth Club, Hargreaves Lansdown, or Octopus).
- Open an account with your chosen broker/platform.
- Complete an Appropriateness Assessment (to check you understand the risks).
- Fill in the VCT application form online.
- Transfer funds (usually via bank transfer now, cheques are rare in 2025!).
- Once processed, your VCT shares appear in your investment account.
- Congratulations, you’re now a VCT investor!
Quick FAQs
Are VCTs worth it in 2025?
For higher-rate taxpayers who’ve maxed out ISAs and pensions, yes — the tax breaks can be valuable. But they remain high risk, high fee, and illiquid.
What’s the maximum I can invest in a VCT?
Up to £200,000 per tax year, with 30% income tax relief.
Can I sell VCT shares anytime?
Yes, but selling before five years means losing tax relief. Even after five years, selling can be slow and often at a discount.
How are VCT dividends taxed?
They’re completely tax-free.
Do VCTs count towards my ISA or pension allowance?
No, they’re separate, which is why some investors use them after maxing out those wrappers.
Final words
Venture Capital Trusts can be exciting. They give you tax-free dividends, upfront tax relief, and a chance to support high-growth UK businesses.
But don’t ignore the risks. High fees, illiquidity, and a real chance of losses mean VCTs should only be a small slice of a well-diversified portfolio.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here, including opinions, commentary, suggestions or strategies, are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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