Investors can purchase as many shares in VCTs as they like, in either new share issues or in the secondary market. However, there is a limit on how many of those shares will qualify for the tax reliefs. That limit is known as the permitted maximum and is currently set at £200,000 worth of VCT share purchases a year, including purchases of newly-issued shares and purchases in the secondary market. 

The permitted maximum was £100,000 up to the tax year 2003-04. Therefore, this limit needs to be used when calculating the value of tax reliefs relating to VCT shares purchased prior to April 2004. 

This means that it is perfectly possible to build up a portfolio of tax-advantaged VCT shares in excess of £200,000, provided that no more than £200,000 of shares were purchased in any single year.

Rules when the permitted maximum is exceeded

If the permitted maximum has been exceeded, when calculating which shares to claim reliefs on, it is NOT possible to choose which shares will be treated as acquired in excess of the permitted maximum (and therefore do not attract any reliefs). 

Instead, shares acquired earlier in the tax year count towards the permitted maximum first. The basic rules are: 

• The annual limit applies to all the taxpayer’s acquisitions in VCTs in the tax year concerned; 
• Shares acquired earlier in the tax year count towards the permitted maximum first;
• Shares in different VCTs or different classes of ordinary share in the same VCT, acquired on the same day, are identified on a pro-rata basis.

This piece has been published as part of the first Adviser’s Guide to Venture Capital Trusts. For the full guide click here