ACCA Advanced Taxation (ATX) Practice Exam

For VCT investments, how long must shares be held to retain income tax relief?

1. 3 years

2. 5 years

3. 4 years

4. 2 years

The correct answer is: 5 years

To retain income tax relief for Venture Capital Trust (VCT) investments, it is essential to hold the shares for a minimum period of five years. This requirement is in place to ensure that the tax relief incentives are used for longer-term investments in smaller, higher-risk companies, thereby promoting growth and stability in the market. The five-year holding period is crucial because if the shares are disposed of or sold before this period elapses, the investor may be required to repay any income tax relief previously claimed. This framework encourages investors to commit their capital longer, supporting the growth of the underlying businesses in which the VCT invests. Understanding this duration helps investors plan their tax strategies effectively while ensuring compliance with the rules governing VCTs. Holding shares for the specified duration also aligns with the broader objectives of VCT regulations, which aim to stimulate investment in high-risk sectors of the economy while providing investors with valuable tax benefits.