rogerbu
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Post by rogerbu on Oct 19, 2015 13:48:08 GMT
I have been a serious VCT investor for 10 years.
They have delivered a steady 8-10% dividend Tax Free (against the net investment - ie Invest £10k get back £3k tax refund = net £7k) plus in some cases a little capital growth.
I do not use the VCT's own dividend reinvestment plans. Instead I accumulate all the dividend and tax refunds into an account and use this to fund the next year's VCT investment - getting a 30% tax refund on the tax refunds and dividends.
After 5 years each VCT is sold and the proceeds reinvested in a different VCT - gaining another 30%
My limiting factor is not generating more tax refund in a tax year than tax I have actually paid in that tax year.
I do not hold any of the Albion family - nothing adverse known - just happy with the ones I do use.
My favorites are Baronsmead, Northern & Maven.
My VCT holding are more than double my P2P holdings and are virtually work free.
VCTs work best for higher rate tax payers, wheras P2P works best for non tax payers. So all VCTs are in my name and all P2Ps are in my wife's name.
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Post by domUP on Oct 19, 2015 13:52:10 GMT
There is a lot of hassle in investing over too many platforms as they all have different procedures eg how and when to fund the account, whether interest is paid prior to drawdown, how the SM (if any) works etc. For safety you should have different user names and passwords etc etc That's exactly the problem we are trying to fix with our platform investUP. Early days, but Version 2 of our site launching in January should start to help you out here.
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Post by domUP on Oct 19, 2015 13:57:05 GMT
Very early days for my budding portfolio (<£500), but I definitely need to diversify the sites I'm on....  |
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james
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Post by james on Oct 19, 2015 15:37:32 GMT
I have been a serious VCT investor for 10 years. ... My favorites are Baronsmead, Northern & Maven. My VCT holding are more than double my P2P holdings and are virtually work free. ... VCTs work best for higher rate tax payers, wheras P2P works best for non tax payers. Those three are well known VCTs with a good reputation that I'd be happy to use, though I do wonder how they will have to adjust their approaches given pending restrictions on management buy-outs, something that I think has been quite popular. I'd say that VCTs work best for the basic rate tax band where income tax is payable at 20% but tax relief is at 30%, so you can make a tax profit on the deal. They are excellent at higher rate or top rate as well.
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arbster
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Post by arbster on Oct 19, 2015 15:47:15 GMT
Do VCTs have any effect on gross pay for tax purposes, or is the tax rebate completely independent? I ask this because I have a relatively careful balance of income and salary sacrifice to ensure we remain eligible for child benefit, and wouldn't want that to be upset by some retrospective adjustment due to investment in VCTs.
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pikestaff
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Post by pikestaff on Oct 19, 2015 16:35:54 GMT
arbster I'm as sure as I can be that it's completely independent. Among other reasons, the clue is in the word 'gross'. A tax rebate won't change 'gross' anything.
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james
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Post by james on Oct 19, 2015 16:45:15 GMT
Do VCTs have any effect on gross pay for tax purposes, or is the tax rebate completely independent? I ask this because I have a relatively careful balance of income and salary sacrifice to ensure we remain eligible for child benefit, and wouldn't want that to be upset by some retrospective adjustment due to investment in VCTs. VCT purchases and income have no effect at all on child benefit eligibility. Neither positive nor negative. Their dividend payments are exempt from income tax and hence do not feature in the adjusted net income calculation which uses taxable income. While dividends in general are included under the taxable income part there, VCT dividends are specifically exempt from being taxable income.
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rogerbu
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Post by rogerbu on Oct 19, 2015 18:35:27 GMT
As above. VCT dividends are tax free. They are simply NOT listed on your tax return (same as ISA income).
On my Self Assessment return I cover myself by adding a comment that VCT & ISA income is not listed as it is tax free.
(VCT Purchase) 30% TAX Refunds are just that.
After all your normal tax calculations you owe HMRC £x for a tax year. Probably already paid via PAYE?
The VCT tax refund reduces the £x by 30% of your VCT investment in the same tax year. It cannot go negative.
e.g. Say your self assessment tax bill for 2015/16 is £6500. You buy £20,000 of VCT shares in the tax year 15/16. generating a tax refund of £6,000. Your tax due is now £500.
VCT Tax Refunds are applied after all other calculations. If you are a higher rate tax payer, then the tax refund doesn't take you out of being a HR tax payer, it simply reduces your tax bill.
If you have already paid the tax via PAYE, you get a refund after you complete the Self Assesment etc.
If you have bought your VCT shares early in the tax year, in theory you can get a reduction in your Tax Code, which will reduce your monthly tax bill.
I have never made this process work properly. ie this year I am due £3k tax refund so far, I requested a reduction in my Tax cade in June. HMRC has eventually reduced my Tax Code by 75, meaning that I will pay £750 less via PAYE this tax year. I will still have to claw back the remaining (£3k - £750) £2250 via my tax return along with all later VCT refunds.
Personally I shall return to claiming all my VCT tax refunds via the tax return, it is much simpler.
Hint - If at all possible, use the online self assessment, as a paper assessment can take 6 months to be actioned by HMRC and a refund issued. (this is true for any tax refunds, not just VCT/EIS/SEIS).
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upland
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Post by upland on Oct 19, 2015 18:58:55 GMT
VCTs - As a long standing holder of these sort of instruments if anyone is interested in these then I would suggest that you take some time in trying to understand how it all works. Remember that these are investment trust shares that invest in very small companies. The income is from dividends and as with most shares the income (dividends) and capital value is not guaranteed. You may not get what you thought. The managers mentioned in this thread are pretty reputable and they each have more than one VCT under their control all with slightly different benefits. When it comes to selling , again nothing is guaranteed as these share are not that liquid and the 'discount' does vary over time. Currently the discount is generally quite small but it has not always been. Bear in mind that there are also charges for running this portfolio for you both initially (small) and ongoing (less small). And do remember that you need some income tax to pay before you can claim it back.
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arbster
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Post by arbster on Oct 19, 2015 19:04:12 GMT
Warnings heard and heeded. I'd researched them earlier in the FY, and put them on the back burner, but may be about to take a biggish cap gains hit that I wasn't expecting so could be back in the market.
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mikes1531
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Post by mikes1531 on Oct 19, 2015 22:37:07 GMT
Warnings heard and heeded. I'd researched them earlier in the FY, and put them on the back burner, but may be about to take a biggish cap gains hit that I wasn't expecting so could be back in the market. Can the 30% VCT relief be used to offset CGT? Or can it be applied only against income tax?
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mikes1531
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Post by mikes1531 on Oct 19, 2015 22:48:41 GMT
I do not use the VCT's own dividend reinvestment plans. Instead I accumulate all the dividend and tax refunds into an account and use this to fund the next year's VCT investment - getting a 30% tax refund on the tax refunds and dividends. This seems to me to imply that any dividends reinvested via a VCT's own plan would not generate the 30% tax refund on the dividends. Is that the case? I've always been under the impression that all investments in VCTs, even those made within such a plan, would qualify for the 30% refund. Have I got that wrong? I can see the advantage, however, of not reinvesting in the same VCT, and using the dividends to invest in a different VCT instead, if you're intending to sell as soon as the five years is up, since continual additional investments would keep pushing the end of the five-year period further into the future and you'd not get there until five years after your last reinvestment. Or is it OK to sell your initial investment once you've had that for five years, and hold on to each of your further investments until you've held onto them for five years?
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james
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Post by james on Oct 20, 2015 1:58:54 GMT
Can the 30% VCT relief be used to offset CGT? Or can it be applied only against income tax? Income tax only, including things like P2P interest: "Relief is given in terms of tax for the year of assessment in which the shares are issued by the VCT and is the smaller of:
a. an amount equal to tax at 30 percent from 6 April 2006 onwards on amounts subscribed within the ‘permitted maximum' (VCM51020), and
b. the amount which reduces the individual's income tax liability to nil." EIS is a possible way to go to reduce CGT but EIS things tend to be higher risk than VCTs. This seems to me to imply that any dividends reinvested via a VCT's own plan would not generate the 30% tax refund on the dividends. Is that the case? I've always been under the impression that all investments in VCTs, even those made within such a plan, would qualify for the 30% refund. Have I got that wrong? I've never heard of a VCT doing that with anything other than new shares which provide the 30% relief. A reason not to do it automatically like that is that you lose control of where and how much is being invested and that makes it a bit harder to manage things. If you were to buy VCT shares on the stock market, as you can, you will not get the initial 30% relief because they are not newly issued shares. You do still get all of the other benefits, like no income tax on dividends and no CGT on selling the VCT shares up to the annual purchase limit to get the 30% relief. I can see the advantage, however, of not reinvesting in the same VCT, and using the dividends to invest in a different VCT instead, if you're intending to sell as soon as the five years is up, since continual additional investments would keep pushing the end of the five-year period further into the future and you'd not get there until five years after your last reinvestment. Or is it OK to sell your initial investment once you've had that for five years, and hold on to each of your further investments until you've held onto them for five years? They do not work as a single combined holding, the individual years are tracked: In determining whether ‘front-end' income tax relief was given in respect of shares disposed of:
o shares acquired on an earlier day are treated as disposed of before those acquired on a later day, and
o between shares acquired on the same day, those in respect of which relief has been given are treated as disposed of only after any other shares acquired on the same day.So while the benefit you described would accrue if they were treated as normal merged holdings, that isn't how they are really held and you do not need to worry about repeatedly using the same VCT. Except that there is a rule about selling and buying back within six (or three, I forget) months, which disqualifies you from getting the 30% relief on the new purchase up to that value.
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mikes1531
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Post by mikes1531 on Oct 20, 2015 2:27:34 GMT
Can the 30% VCT relief be used to offset CGT? Or can it be applied only against income tax? Income tax only, including things like P2P interest: EIS is a possible way to go to reduce CGT but EIS things tend to be higher risk than VCTs. This seems to me to imply that any dividends reinvested via a VCT's own plan would not generate the 30% tax refund on the dividends. Is that the case? I've always been under the impression that all investments in VCTs, even those made within such a plan, would qualify for the 30% refund. Have I got that wrong? I've never heard of a VCT doing that with anything other than new shares which provide the 30% relief. A reason not to do it automatically like that is that you lose control of where and how much is being invested and that makes it a bit harder to manage things. Or is it OK to sell your initial investment once you've had that for five years, and hold on to each of your further investments until you've held onto them for five years? They do not work as a single combined holding, the individual years are tracked: : Thanks for all that input. CGT relief: I don't have any CGT to relieve at the moment, so this doesn't actually affect me, but it's good info to have. And it's probably something arbster needs to think about if he does incur the CGT he thought he might, as it doesn't look like a VCT investment would help him avoid having to pay his CGT. DRIPs: I'm in the DRIP of the one VCT I own. I'll need to double check with them that they're issuing new shares. I know they used to, because they used to provide a certificate of eligibility for tax relief with each reinvestment statement, but they've changed their paperwork recently, and it's no longer obvious. Which shares are sold first: Your description looks like FIFO, which would produce the best result, so that's good news.
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rogerbu
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Post by rogerbu on Oct 20, 2015 8:31:10 GMT
Quote 'DRIPs: I'm in the DRIP of the one VCT I own. I'll need to double check with them that they're issuing new shares. I know they used to, because they used to provide a certificate of eligibility for tax relief with each reinvestment statement, but they've changed their paperwork recently, and it's no longer obvious.'
Some of the VCT DRIP schemes specifically show that reinvestments are entitled to the 30% Tax Refunds. Other VCT DRIPs are less clear.
This is one of the reasons I don't use the DRIP schemes but accumulate dividends and tax refunds for investment into another VCT investment (which is very likely to be into one of the VCTs I like).
Also receiving several DRIP reinvestments during a year can be messy to keep track of.
As I am managing tax refunds to minimise the eventual income tax I pay, I want it simply.
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