Which scheme provides exemption from income tax on dividends?

Venture Capital Trusts (VCTs) provide significant tax advantages, including exemption from income tax on dividends paid to shareholders. This is a key incentive for investors in VCTs, as it enhances the appeal of investing in early-stage and high-risk businesses. The structure of VCTs allows investors who meet certain conditions to receive tax-free dividends, thereby promoting investment in sectors that may be considered too risky for traditional financing.

The specific rules surrounding VCTs aim to stimulate the growth of small and medium-sized enterprises by providing them with the necessary capital while simultaneously rewarding investors with tax benefits. These exemptions make VCTs an attractive option for those looking to invest in UK businesses while enjoying favorable tax treatment on the income generated from those investments.

Other schemes such as Enterprise Investment Schemes, Seed Enterprise Investment Schemes, and Funds of Funds may offer various tax reliefs or benefits but do not include the same level of exemption from income tax on dividends as VCTs do. Each of these alternatives offers different incentives, but none match the specific dividend tax exemption granted to VCT shareholders.