Investments that give TAX RELIEF - eg VCT/EIS/SEIS/SITR/CDFI

These are very hard to compare, Pensions are generally a wrapper, VCTs are like a fund and (S)EIS is usually a single, very risky, company, although there are a few EIS funds. I really regret my pension contribution, see below, but for someone who is nearly 55 the calculation may be very different.

My experience:-

My favourite investment of all time was a VCT. Currently its  net asset value (NAV) and share price are above my original purchase price - if I were to sell now there would no capital gains to consider as I have held them for more than five years. And every year it has paid out tax free dividends of between 6% and 18%, with the average probably above double figures. This is addition to the 30% tax credit I had when I started. However recent EU state aid rules have forced changes on VCT companies. I doubt that this company will do as well in the future.

I have bought a few poor VCTs as well, and there are some currently raising money (at a 3-6% premium to NAV) that have recently been available at close to a 30% discount to NAV. Beware. I have bought some in the secondary market at close to 30% discount (below in one case). No tax relief on these, and the £200k annual total still applies, but dividends are tax free and no need to hold for five years. 

One of my biggest regrets is a pension contribution I made when I was very young. This money feels very exposed to the whim of the chancellor, most of whom have worsened pensions. And I haven't really saved any tax, all I have done is defer it, perhaps to a time when John McDonnell is chancellor!

I have made 30 (S)EIS investments, over 4 years. Seven of these are now effectively worthless. Four more are definitely worth much less than I paid for them and another four are worth a little less than I paid. Half of the rest are too recent to comment and I am optimistic about the remaining eight. I don't expect any of these to exit successfully in 2018, and based on track record I imagine at least one of those 8 will fail in the next 12 months. One thing to watch out for is that often the tax relief is an illusion. Because many institutions can't use EIS shares there is often another class for them and sometimes it is very different in terms of price or benefits. 

There has been such an explosion of activity in this area in the last few years, it is hard to know what the future returns are likely to be. If you are considering investing on Seedrs or SyndicateRoom I would read Fantasy Equity Crowdfunding first. If you are thinking of investing on Crowdcube. I would suggest you read the same blog and then not bother.

Capital gains will have come from the sale of a BTL flat, or large share holding, gold, the usual stuff. My understanding is that instead of paying the tax, you can make (S)EIS investments, get (50) 30% income tax credit and only pay the original capital gains when you sell these. If these are successful investments you have deferred the tax for  a few years, if they are unsuccessful you don't have to pay it and you still get some loss relief. I read once that in the early days of SEIS the total tax credit on a failed SEIS was 102%.

SEIS are very similar to EIS except that company has to be younger or smaller (perhaps both I can't remember) hence much riskier so you get 50% tax credit.  

In VCT you say "Draw on income and capital at ANYTIME", but if you sell anything within 5 years you will have to pay the tax relief back, and you can only draw on income if they pay dividends, not all VCTs have any in the first year and they can be small. Also you might be able to recycle, but you may see a lot of that 30% disappear in fees (selling at a discount, buying back at a premium to NAV).  


 

Both are Income Tax and are relieved through VCTs

Just be aware you (may) have allowances for both of those, so add that in first before deciding on how much relief you would need after that through VCTs (ie you only receive relief against tax actually payed, after allowances)  

Going through a broker can often give you a discount. Some also return a % of their annual 'bung' from the VCT companies.

Going direct to the VCT company is an expensive way of investing.

I use Club Finance www.clubfinance.co.uk/Open-VCT.php happy so far, good service. Others are available. Compare discounts and annual 'bung' refunds. (These refunds count as taxable income)

You asked earlier about selling costs. I have sold via HL. I send the Share Certs to them and they add them to my Stocks and Shares account.
It then cost £20 per share to sell as they have to be sold on the phone.
Note it is £20 per VCT Share name not £20 per VCT company. So selling my Maven VCT 1, 2, 3 & 4 recently cost me £80. The price I received was inline with the quoted prices.
I now avoid investing in multiple VCTs from the same VCT company, ie buy all Maven VCT1 instead of smaller amounts of Maven VCT1 and 2

The upfront 30% discount is effectively diluted by each year the VCT shares are held. So I always sell after 5 years, and if I still like them, rebuy +/- 6 months later or another from the same VCT company to avoid an HMRC wrist smack. ie sell Maven VCT 1,2,3 & 4 then buy Maven 5 immediately. 

I have used Maven VCTs above as an example. I am making no positive or negative recomendation of any one VCT company.

One other thought. When investing in VCT offers. The share price used is driven off the NAV not the Quoted Share Price. So it is important to see what Discount to NAV the shares are trading at. Use the prospectus calculation to see what the actual Tax Refund of 30% discount actually works out to be - often about 25%.

Hi, I haven't bought from Tilney, but I have bought from another broker and I received the early bird discount in addition to the broker's discount. 

Very much so. Some can be shocking.

Some are surprising liquid, if you are a little patient. Some recent changes in legislation no longer restrict the maximum size of a VCT fund (or the maximum investment or something) and so instead of having 2-6 funds they are starting merging their funds (worst performing funds into the best performing so be careful when you look at the history). I would assume that I could buy or sell at least £10k of the larger funds such as Foresight 4 VCT (bid 60.25p 63.25p ask) or Octopus Titan VCT (bid 90.75 92.75 ask). The liquidity in the smaller ones is very poor, such as Oxford VCT 2 (bid 15p -30p ask) (maximum 2000 shares). 

I have assumed that I won't be able to exit easily, but there are often tender offers for buybacks from the issuing companies.

I buy through my normal online broker. They tell me that I might do better if I used their telephone service, but the costs are very high for that. 

The final sale value is going to depend on a combination of four things:- how well they have invested your money; how much fees they have charged; how much dividends they have paid out; and sentiment towards the remaining portfolio/management company.
I have seen VCTs be priced at a premium to NAV.
The VCT is a listed company and the share price fluctuates with supply and demand; though some companies with spare cash have a policy of buying back shares - perhaps at a 10% discount, which helps demand.

The initial costs are normally charged as a premium to NAV that you paid by getting fewer shares than the true NAV would imply. The other costs are paid by the VCT company (which in turn reduce the amount of cash for dividends, buybacks and NAV). In your case I hope that there wasn't a performance fee if the NAV fell 32%!

Investment Trusts tend to trade at a discount to Net Asset Value. What you will have paid for new shares is the NAV plus the Initial Cost minus any discount that you received from HL.  The VCT share price includes the discount to NAV.

You need to claim the 30% tax relief on your tax return for 2016/17. The box is labelled Subscriptions for Venture Capital Trust shares on the paper return and appears on the Additional Information pages.

The dividend rate is set by the board of the VCT. Most VCTs will declare that they will pay out at least X p/share every year. The value of X usually appears in the half year and annual reports. They will sometimes pay out more than X if they have had a successful divestment and they can't find anywhere else to re-invest the money.

If you sell in less than 5 years you will get the share price (or 5% less than NAV if you sell to Albion), but you will also have to repay the tax relief if you have already claimed it.