10 - Indirect Investments (L)

Question 1

With regards to investor income on the “growth” in the portfolio of a qualifying VCT and EIS, what is the main difference on its taxation?

Answer 1

VCT tend to pay out tax-free dividends, EIS tend not to distribute dividends as they need as much capital as possible to grow, but if they do choose to distribute dividends, they are not tax-free like they are with the VCT.

Question 2

What is the income tax relief available on a VCT? What is the investment limit?

Answer 2

30% on investments up to £200,000 in ordinary shares

Question 3

What is the tax treatment of dividends available under a VCT?

Answer 3

Tax-free with investments up to £200,000

Question 4

What is the CGT treatment when disposing of VCT shares?

Answer 4

Exempt

Question 5

Is there a CGT relief available for reinvestment of shares within a VCT?

Answer 5

No

Question 6

Income tax can be withdrawn if VCT shares are disposed of within how many years?

Answer 6

5 (excludes transfer to spouse or if death occurs)

Question 7

A VCT must be a listed or unlisted company?

Answer 7

Listed

Question 8

What is a “close” company?

Answer 8

A limited company with 5 or fewer ‘participators’, or a limited company of which all the ‘participators’ are also directors.

For most small limited companies, ‘participators’ will just mean shareholders.

Question 9

A VCT must not be a close company. True or false?

Answer 9

True

Question 10

A VCT portfolio’s income must be derived wholly or mainly from what?

Answer 10

Shares or securities.

Question 11

How much of a a VCT’s portfolio must be invested in VCT-qualifying companies?

What can the rest be held in?

Answer 11

80%

Cash or invested into cash equivalents which can be readily realised within seven days – such as money market funds or shares listed on the FTSE.

Question 12

A VCT can invest up to how much of its money in a single company?

Answer 12

15%

Question 13

Each company is allowed to receive up to XXX of VCT or other tax-efficient funding in any twelve-month period, with a cap of XXX over its lifetime?

Answer 13

£5m (£10m knowledge intensive) and £12m (£20m knowledge intensive)

Question 14

At least HOW MUCH of the investment in any company must be held in ordinary, non-preferential shares?

Answer 14

10%

Question 15

A qualifying VCT company must have fewer than the equivalent of XXX full-time employees (XXX for a knowledge-intensive company).

Answer 15

250 and 500

Question 16

What is the risk-to-capital condition?

Answer 16

1. The Company must have the growth and development of the business over the long term as an objective
2. The investor must be at a significant risk that they stand to lose more than they stand to gain as a return – after tax relief!