What conditions must be met for VCT dividends to be exempt from income tax under section 709?

The company must have held VCT status at the end of the accounting period when profits arose, when the dividend was paid, and when shares were acquired. The investor must be an individual aged 18 or over, and total VCT share acquisitions must not exceed £200,000 market value per tax year.

What is the annual acquisition limit for VCT shares qualifying for the dividend tax exemption?

The annual limit is £200,000 measured by the total market value of all VCT shares acquired by the individual or their nominee in a tax year. Market value is determined at the time each share is acquired. If the limit is exceeded, section 710 provides rules for determining which shares qualify for exemption.

What is the anti-avoidance rule for VCT dividend exemption under section 709?

For shares acquired after 8 March 1999, they must have been acquired for genuine commercial reasons and not as part of a scheme or arrangement with a main purpose of tax avoidance. Shares failing this test are completely disregarded when calculating whether the £200,000 annual acquisition limit has been breached.

Who qualifies as an eligible investor for VCT dividend exemption?

The person beneficially entitled to the dividend must be an individual aged at least 18. They must hold the shares directly or have them held by a nominee on their behalf. A nominee includes trustees of a bare trust where the individual is the sole beneficiary of that trust.

Income Tax (Trading and Other Income) Act 2005 section 709

Venture capital trust dividends

Section 709 sets out the conditions that must be met for dividends from venture capital trusts (VCTs) to be exempt from income tax, covering requirements relating to the nature of the dividend, the investor, and the circumstances of the investment.

Dividends on ordinary shares in a VCT are exempt from income tax provided the company held VCT status at the relevant times, the investor is an individual aged 18 or over, and the annual acquisition limit is not exceeded
The annual limit on VCT share acquisitions qualifying for dividend tax relief is £200,000, measured by market value at the time of acquisition in each tax year
For shares acquired after 8 March 1999, the shares must have been acquired for genuine commercial reasons and not as part of a tax avoidance scheme or arrangement
Shares acquired in breach of the anti-avoidance rule are disregarded entirely when calculating whether the £200,000 annual limit has been exceeded

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