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A VCT is a company whose shares are listed on the London Stock Exchange which must invest in qualifying companies – broadly smaller UK businesses carrying out a permitted trade. The investor subscribes for shares and receives income tax relief on his investment. All dividends and capital gains on the shares are tax free if certain rules are obeyed.

The VCT has become a central part of the tax shelter industry and very large sums of money have been raised. The most successful fundraising year was the tax year 2005-06, when £779m was raised and, more recently, £330m was raised in 2011-12.

However, following the close of the 2010-11 season, one IFA was quoted as believing that only around 30% of new VCT money goes into investment in small unquoted companies: “Much of the rest is going into other investments which, while allowable under VCT rules, are not so much in the spirit of what VCTs were originally intended for,” he said. One example he cited was the pre-sale financing of annual season tickets for premier league football clubs. “So, while the headline VCT sales figures may appear to be very good news for small British companies, the overall reality is likely to be somewhat different,” he commented.

If you want to learn more about the rules VCTs operate under, a good starting point is the HMRC guidance notes available from its website (www.hmrc.gov.uk/guidance/vct.htm).