stevio
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Post by stevio on Oct 20, 2015 11:54:14 GMT
Thanks for all the VCT advice (just to note, diversification advice still appreciated!)
They do seem to give similar returns to P2P, an at least similar risk factor as P2P, as well as an additional advantage of the tax offset
I run my own Limited Company and and one of the hardest things is to move the money from the company to personally in the most tax efficient way possible. I get to choose the level of salary and dividends paid, but have been limited by a ceiling were after tax is paid.
There will also be a change to the dividend tax, which I would like to (legally) avoid additional tax if possible.
Part of VCT's value seems to be dependent on the (income) tax paid (still unclear if all personal tax?). Assuming sufficient funds, therefore I am contemplating whether I could pay more in salary and dividend, but offset the additional IT and dividend tax with VCTs?
Can I offset dividend tax?
This would be preferred as there is salary incurs personal/company national insurance but not on dividends.
Also, assuming sufficient funds, can you invest every year in VCT's, so effectively receive the tax relief every year?
I presume you would just need to find sufficient funds for 5 years, then after that no new money as they can continually rolled over into subsequent years - eg buy years 1,2,3,4,5 then roll over each year after initial 5 years?
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bigfoot12
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Post by bigfoot12 on Oct 20, 2015 12:15:44 GMT
They do seem to give similar returns to P2P, an at least similar risk factor as P2P, as well as an additional advantage of the tax offset I think that these have got better as they have grown, but going back more than 10 years many had very patchy returns. And one final warning is that many have a higher dividend than the total return after fees, i.e. some of the dividend is in effect your own capital. Having said that I own one of the ones mentioned above and it has been one of my best investment since 2008. Part of VCT's value seems to be dependent on the (income) tax paid (still unclear if all personal tax?). Assuming sufficient funds, therefore I am contemplating whether I could pay more in salary and dividend, but offset the additional IT and dividend tax with VCTs? Can I offset dividend tax? As far as I understand you calculate your total income tax bill first and then the income tax credit is deducted from that (so no use helping you get below the child benefit allowance or single persons allowance claw-back). Whether your income is from salary or savings or investments is immaterial (as far as I understand and I'm neither an accountant nor a lawyer). Also, assuming sufficient funds, can you invest every year in VCT's, so effectively receive the tax relief every year? I think the only limit is the £200k annual limit, and you can only offset against tax you have or would have paid. I presume you would just need to find sufficient funds for 5 years, then after that no new money as they can continually rolled over into subsequent years - eg buy years 1,2,3,4,5 then roll over each year after initial 5 years? The exit might be more difficult than that. Many offer to buy back at a 5% or 10% discount, but only up to a small limit, and only if they have spare cash. As others have said vcts and investment trusts more generally have small discounts at the moment, historically the discount has been much greater. Even now some VCTs have 30% discounts to NAV, most will have only one market maker who will charge deep discounts to NAV and might not make a price in more than £10k at a time. The larger the fund the more liquid it is likely to be. There is a good chance that the cost to net asset value will be at least 10% to exit and you will pay as much as 10%, with 5% possible to enter the new fund taking away half of the tax gain. Would you want to be forced to hold a fund for 5 years which is illiquid, high risk, with high fees for a 15% tax credit?
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upland
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Post by upland on Oct 20, 2015 12:20:48 GMT
Thanks for all the VCT advice (just to note, diversification advice still appreciated!) They do seem to give similar returns to P2P, an at least similar risk factor as P2P, as well as an additional advantage of the tax offset I run my own Limited Company and and one of the hardest things is to move the money from the company to personally in the most tax efficient way possible. I get to choose the level of salary and dividends paid, but have been limited by a ceiling were after tax is paid. There will also be a change to the dividend tax, which I would like to (legally) avoid additional tax if possible. Part of VCT's value seems to be dependent on the (income) tax paid (still unclear if all personal tax?). Assuming sufficient funds, therefore I am contemplating whether I could pay more in salary and dividend, but offset the additional IT and dividend tax with VCTs? Can I offset dividend tax? This would be preferred as there is salary incurs personal/company national insurance but not on dividends and dividends receive corporation tax relief. Also, assuming sufficient funds, can you invest every year in VCT's, so effectively receive the tax relief every year? I presume you would just need to find sufficient funds for 5 years, then after that no new money as they can continually rolled over into subsequent years - eg buy years 1,2,3,4,5 then roll over each year after initial 5 years? This is my understanding , you should get proper advice if you are going to take it further. As I understand it it may be used against personal income tax. It seems very directed towards the person. VCTs are actually issued as share certificates just like any other share because that is what they are. The share certificates are in your name and not a nominee or other entity. The relief is against income tax. I think that normal dividends do not appear in income tax , if you are a high rate tax payer then the additional tax does. That will change a bit with the new 5K dividend tax threshold. You can buy them every year , the VCT companies raise money usually over some months. Sometimes these sell out in days though , usually 20 - 40 M typically. In my opinion most VCTs only make sense if you can offset them against income tax. I usually buy some every year. I guess that you could do something like that. Personally I have never sold one that I own. Some of my holdings have paid me more dividends that they cost me. Do bear in mind that these are illiquid shares with high spreads and often a significant discount. They are not for trading. There used to be tender offers that would allow you to do that automatically but it was stopped. A VCT is an ongoing regulatory situation. It changes to address the latest thinking. I think that the governmental objective is to fund tiny companies and produce jobs. You money in VCTs is doing that , its not a free lunch and there are risks.
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upland
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Post by upland on Oct 20, 2015 12:27:48 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. I have never used a DRIP (or DRIS) scheme as you say it would be messy for me to keep track of. I do know of people who have used them very effectively over many years. A DRIS scheme is like a DRIP scheme only the dividends are used to buy shares in the secondary market at minimal cost. Its helps to keep the VCT share price strong. Worth mentioning as one of the big market leaders uses it to great effect. Unfortunately the recent 2015 regulation has caused some managements to review their use of DRIPs.
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upland
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Post by upland on Oct 20, 2015 12:38:37 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? Hi Mike , as has been stated VCTs are no help with CGT. Many years ago there were provisions for CGT deferral (pre 2004 ish) but it meant that you had to hold the shares for a long period. There are some schemes that I believe can be used to mitigate CGT , have a look for EIS schemes. They are possibly useful for inheritance tax problems too. However these in my view even harder to get a good understanding of , they are even more illiquid and smaller. Hi Arbster , I did rather feel that the thread was getting a bit taken up with tax relief and return rather than what the actual assets were. Hence my words of caution.
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stevio
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Post by stevio on Oct 20, 2015 13:26:56 GMT
Not sure if a Mod might be able to split this thread into maybe a diversification thread and a VCT thread?
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bigfoot12
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Post by bigfoot12 on Oct 21, 2015 9:37:47 GMT
stevio WSJ article 'Tech startups feel the IPO chill' worth a read if you are considering investing in VCTs.
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james
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Post by james on Oct 21, 2015 11:34:13 GMT
stevio WSJ article 'Tech startups feel the IPO chill' worth a read if you are considering investing in VCTs. How is that of relevance to the sort of VCT being discussed here? They aren't significantly invested in tech-heavy US startup companies with IPO as the primary exit route and there's none of that in the first one mentioned, Albion VCT. There are some VCTs that specialise in early stage startup companies that do have an IPO as one of the possible exit routes, along with trade sales but those aren't the sort of asset-backed projects that are comparable to P2P lending.
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bigfoot12
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Post by bigfoot12 on Oct 21, 2015 11:50:26 GMT
How is that of relevance to the sort of VCT being discussed here? They aren't significantly invested in tech-heavy US startup companies with IPO as the primary exit route and there's none of that in the first one mentioned, Albion VCT. There are some VCTs that specialise in early stage startup companies that do have an IPO as one of the possible exit routes, along with trade sales but those aren't the sort of asset-backed projects that are comparable to P2P lending. a) I don't think any of the VCTs are comparable to P2P lending. b) It isn't currently possible to buy the Albion VCT. c) It is getting harder (for the VCT companies) to invest in asset backed projects. d) There is likely to some correlation between VCTs and venture capital companies, even US ones. It might be that the price to NAV discount will return to where it was a few years ago. Or maybe not. If reading it means that people are more careful which VCTs they invest in, do they get a share of the existing portfolio and so on. And having done that they work out how much they want at risk this way, rather than dividing their tax by 0.3 and investing that amount then it will have been useful.
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james
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Post by james on Oct 21, 2015 12:18:14 GMT
If you don't think that asset-backed VCTs are comparable to P2P lending then they won't for you be a suitable P2P diversifier, at least not on that basis.
The Albion VCT and most other VCTs are not currently available a new issues because we're not in VCT season at the moment. It was available through July and perhaps part of August (sold out before formal end of offer at the end of September) and it's expected to be again in November. It's a share to there's probably availability on the stock market, though that lacks the 30% tax relief for new issues.
I agree that finding good asset-backed investment opportunities is probably getting harder because various types are no longer permitted for new VCT investment. So long as there are enough to meet the needs of the VCTs that favour this part of the VCT market I'm content enough with this.
The price to NAV discount is an interesting subject, with the Albion VCT having set theirs to a target of about 5%, something they have been delivering on. That's the lowest I've seen, with 10-15% or higher more usual. There is the matter of the open market discount without the VCT itself being considered as the buyer but that's somewhat moot since the VCT ends up being the buyer when the discounts breach its discount policy.
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Steerpike
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Post by Steerpike on Oct 21, 2015 12:28:28 GMT
I have a few VCT investments including Albion.
In a recent Chairman's Statement for one of the VCTs, reference was made to two recent total write offs relating to companies in China. For one of these companies the MD ran off with the money and refuses to pay up. Apparently the authorities found no evidence of illegal behaviour.
The tax relief and tax free dividends are very welcome, the operating costs and risks can be high.
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james
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Post by james on Oct 21, 2015 13:26:53 GMT
I have a few VCT investments including Albion. In a recent Chairman's Statement for one of the VCTs, reference was made to two recent total write offs relating to companies in China. For one of these companies the MD ran off with the money and refuses to pay up. Apparently the authorities found no evidence of illegal behaviour. The tax relief and tax free dividends are very welcome, the operating costs and risks can be high. Which VCT was that? If I recall correctly the Albion VCT has almost exclusively UK holdings (0.9% invested in a Perth company) and it doesn't seem like something that the others which have been mentioned here before would get involved in either. That Chinese stuff is the sort of thing that caught out Anthony Bolton and his Fidelity China Special Situations Trust when they found that they couldn't rely on the accounts of Chinese companies either.
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james
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Post by james on Oct 21, 2015 13:37:11 GMT
Not sure I'm understanding the attraction of this Albion VCT (ticker AAVC LN). It trades @ 65.5, having been issued at par. Total return performance over last ten years seems a bit poor at 2.33% annualized. It did do phenomenally well during the period 1999 to 2006 but took a really beating during 2008/09. It had some terrible holdings during that period (P-notes of companies like Ursa Bank, Bank Vozrozhdenie, Bank Millenenium, South Indian Bank, Sberbank etc in late 2008). Not the type of stuff I would have expected from this VCT; implies some mandate drift and they were rather over their skis by 2008. It paid away a lot of capital to maintain the 5% dividend during that period. It's done better again since 2010 but not any better than a typical corporate bond fund. It's also an incredibly small fund at just £46mm.
The corporate bond fund doesn't get the boost from a 30% tax-funded discount to the purchase price, so the yield isn't as good by comparison. The corporate bond fund isn't likely to be asset-backed, while the Albion VCT these days invests " solely in asset based companies" (page 17) according to its investment policy. At some point, barring adjustments, I expect it was issued at 100p but given the practice of paying out gains as dividends it's no surprise for it to be lower. New issues are priced based on the NAV so nobody buying recently would have been paying 100p. It was around 71.3p for new issue buyers in April, after reduction for issue costs, before tax relief. I don't know how much of the past activity you see might have been from Albion Prime that merged into it in 2012 or any others that were merged in. Doesn't seem consistent with the investment policy it's had for a while now. I doubt that the total return number includes the effect of the tax relief on effective purchase price. OK so far as it goes but not the real after tax returns that investors would have seen. I doubt that I'd be interested in a VCT that does much of the things you described for the earlier period.
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Steerpike
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Post by Steerpike on Oct 21, 2015 13:49:09 GMT
I have a few VCT investments including Albion. In a recent Chairman's Statement for one of the VCTs, reference was made to two recent total write offs relating to companies in China. For one of these companies the MD ran off with the money and refuses to pay up. Apparently the authorities found no evidence of illegal behaviour. The tax relief and tax free dividends are very welcome, the operating costs and risks can be high. Which VCT was that? If I recall correctly the Albion VCT has almost exclusively UK holdings (0.9% invested in a Perth company) and it doesn't seem like something that the others which have been mentioned here before would get involved in either. That Chinese stuff is the sort of thing that caught out Anthony Bolton and his Fidelity China Special Situations Trust when they found that they couldn't rely on the accounts of Chinese companies either. Sorry, I see, that could be read as one of the Albion VCTs which it was not, it was one of the smaller ones, A***i.
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james
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Post by james on Oct 21, 2015 13:57:53 GMT
Which VCT was that? If I recall correctly the Albion VCT has almost exclusively UK holdings (0.9% invested in a Perth company) and it doesn't seem like something that the others which have been mentioned here before would get involved in either. That Chinese stuff is the sort of thing that caught out Anthony Bolton and his Fidelity China Special Situations Trust when they found that they couldn't rely on the accounts of Chinese companies either. Sorry, I see, that could be read as one of the Albion VCTs which it was not, it was one of the smaller ones, A***i. Thanks. So not one of the other mainstream UK generalist VCTs mentioned here so far, "Baronsmead, Northern & Maven" either. Good to know. I hope that at least you knew the sort of investments that would be made, even though the loss presumably hurt. Seems like the sort of VCT I'd avoid but nothing wrong with you having interest in a different type from me.
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