Reducing Your Tax Bill with Venture Capital Trusts

Reducing tax bills is one of the biggest conundrums for high-net-worth individuals and it isn’t always easy to find the right way to gain tax relief. Making smart investments and getting the help of an investment law firm can help.

Additionally, if you are looking for a reduction on your tax bill through tax reliefs and other benefits, you could choose to use a venture capital trust. These could offer you a good monthly income fund while minimising your tax bill.

If you are unsure ab the particulars of venture capital trusts, we have compiled the below guide to help you understand what they are, how they work, how to invest in one, and how they can help you reduce your tax bill.

What is a venture capital trust?

A venture capital trust is an investment system that has been created to invest funds in burgeoning businesses. Often, these fledgling enterprises are small start-ups seeking initial funding and capital to get off the ground.

Venture capital trusts then make money when their investments in these small companies grow and develop into large profits.

There are strict regulations around how venture capital trusts operate, so you will find that all venture capital trusts follow the same rules when investing and drawing profits for income.

How do venture capital trusts work?

Venture capital trusts work by pooling the funds of several high-net-worth investors. Usually, these investors will not have a decision in the companies they invest in. Although, many venture capital trusts are set up to serve certain industries such as pharmaceuticals, technology or energy.

A venture capital trust is a company in its own right. It is important to know that if you invest in a venture capital trust, your shares are not in the small businesses that are given capital, they are in the venture capital trust.

How do I invest in a venture capital trust?

To buy into a venture capital trust, you might want to use a trusted partner to help you select one that invests with the level of risk you are comfortable with and in industries that you support or want to be associated with.

You can buy in by subscribing to new shares when a new venture capital trust is launched. Alternatively, you can buy shares from ainvestors who are looking to sell their existing shares in a thriving venture capital trust.

How does a venture capital trust reduce a tax bill?

Venture capital trusts offer tax relief for investors to encourage them to provide capital for essential business who are struggling to find the capital they need. Essential, the tax reliefs of up to 30% are put in place to incentivise potential investors to invest in high-risk enterprises.

There are regulations on how you can obtain this tax relief and you have to follow them closely to receive the discount on your tax bill you want. You can retain your tax rebate only if you hold you venture capital trust shares for a minimum term of five years.

Venture capital trusts can be a great way to reduce your tax bill, provided you follow the correct regulations and have the right investment legal team in place before making your investment.

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