04: The underlying investments

Both VCTs and EISs are investments in small unlisted companies, which can include companies quoted on the Alternative Investment Market (AIM). A qualifying company cannot have gross assets of more than £7m before the issue of shares and £8m after the issue.

The EIS investment must be in newly issued ordinary shares, which carry no preferential rights. A VCT must invest at least 70% of their assets in newly issued securities of unlisted companies.

• No more than 15% of a VCT by value may be invested in any single company or group of companies.
• At least 30% of the VCT’s investments must be in new ordinary shares of qualifying companies, with no preferential rights.
• At least 10% of a VCT’s investment in any company must be in ordinary, non-preferential shares.

VCTs have three years from the date of share issue in which to satisfy the 30% and 70% provisions.