ACCA Advanced Taxation (ATX) Practice Exam

Which of the following statements is true regarding VCT investments?

1. There is no reinvestment relief for VCT investments

2. Reinvestment relief is applicable for VCT investments

3. VCT investments have a time limit for reinvestment relief

4. VCT investments offer higher relief than EIS and SEIS

The correct answer is: There is no reinvestment relief for VCT investments

The statement that is true regarding VCT investments is that there is no reinvestment relief for VCT investments. In the context of Venture Capital Trust (VCT) investments, the tax incentives primarily offered are income tax relief and capital gains tax relief. However, VCTs do not have a mechanism for reinvestment relief similar to that found in the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS). Investors in VCTs benefit from a tax relief on the initial investment, but once that investment is made, there are no additional reliefs available for reinvesting any returns from the VCT. This distinguishes VCTs from EIS and SEIS, where investors can claim reinvestment relief under certain conditions, allowing them to defer capital gains tax if they reinvest in qualifying investments. Thus, the lack of reinvestment relief specifically highlights one of the fundamental characteristics of VCTs compared to other investment schemes that may provide more flexible tax relief options.