VCT (Venture Capital Trust) is a UK-specific listed fund structure that channels retail investment into qualifying young companies with tax incentives for shareholders.

How it works

VCT managers raise money by issuing shares on the London Stock Exchange (often AIM). Qualifying UK taxpayers can claim income tax relief on new VCT subscriptions, subject to annual limits and rules set by HMRC. Dividends from VCT shares are typically tax-free; gains on disposal may also be exempt if holding requirements are met.

Portfolio companies must meet strict eligibility — size limits, age tests, and restrictions on certain sectors and activities. VCT rounds are often smaller than institutional Series A checks but can bridge growth capital for profitable or near-profitable UK SMEs.

Liquidity is limited: VCT shares can trade, but secondary markets are thin. Investors are encouraged to hold for the long term — aligned with underlying private company timelines.

For founders, diligence feels like traditional VC plus VCT-specific compliance. Timelines can stretch around tax-year fundraising windows when managers market new share issues.

Why it matters

• Founders: VCT capital can be patient and less dilutive than some alternatives, but covenants and reporting must fit VCT rules — not every cap table or structure qualifies.
• Investors: VCTs offer diversified venture exposure with tax wrappers unavailable in standard fund LP interests. Returns still depend on underlying company performance, not tax relief alone.

Common mistake

Assuming VCT money behaves like US venture growth equity. Ticket sizes, sector focus, and exit paths often skew toward lower-middle-market UK businesses, not global hyper-growth bets.

Related ideas

See EIS and SEIS (related UK schemes), venture capital, and growth equity.