Should I diversify further?

Current offer prices for Albion VCTs based on June NAV plus 3% appear to result in an instant aproximately 10% loss based on current LSE Share price.

However, taking in to account the capital and dividend tax allowances and minimum 5 year term this is probably not a prohibitive cost of entry.

Forgot to mention that if you use Clubfinance you will need to return one of their client declaration forms as they are execution only brokers , you can get them online or they will send them - very helpful people I find.

10% is about right for a late in the tax year purchase including the issue costs. Earlier buyers who get larger commission discounts and existing holders with another 1% see a lower initial drop. On the open market there's a 5% or so discount to NAV buyback policy.

Hi james , I am just being very exacting as from earlier posts on the thread I felt that people may not have the correct idea about what Albion were offering. I listed all 6 of them all above (and do own all). Albion Venture Capital Trust PLC  and Albion VCT I felt have been treated as the same entity. But there is an Albion Development PLC , Albion Enterprise and Albion Tech and Gen plus two reconstructions that were not originally part of the old Close Bros VCT arm. In order to get better diversity one should think about buying all. When people get the application form one of the questions will be how much of each do you want and with names like Crown Place PLC and King Arm Yard PLC there may be some confusion.

Thanks All

So the VCT applies to the tax year in which you buy it?

As tax returns don't normally get completed till Dec/Jan following the end of the tax year, do you guys work out in advance how much IT you need to offset?

I have PAYE, Dividends, savings and rental income to account for, not just for me, but also for my wife. With several changes in taxation coming in April, I am not looking forward to working out how much I need to invest in a VCT to offset the IT 

PS - did we ever get confirmation that VCT's can offset the taxation of dividends?

Also, how do VCT contributions compare in tax efficiency compared to personal pension contributions? 

Thanks

Depends on how close a person is to getting access to pension money and on what they want to invest in.

VCT users can buy then sell after at least five years, then reinvest to get 30% relief each time. There may well be some loss of capital due to costs and discount policies but call it say 25% gain each time. Or 20% if you like. Given enough repeats you can get far more total tax relief than a pension offers, with someone aged 35 able to collect five times until they reach 55, achieving 150% income tax relief on the money and no income tax or capital gains tax when withdrawing.

Until age 55 the pension tax relief is a once-only deal and some of it is taken back when you take the money out, so the net relief might be as little as 6.5% for a person liable to basic rate income tax when paying in and taking out. Vs no tax on the way out for the VCT so you really do get the 30% (less the somewhat higher VCT buying and selling costs, though). If you can pay in at 40%or 45% and take out at 20% or 40% there's a bigger margin and more so if at 0%. 0% on the way out is potentially doable if doing things like state pension deferral and taking income from other untaxed investments like the pension lump sum and ISA or VCT income. But the number of years for which this is true is quite limited and hence so is the amount that can be taken out at 0%.

There is the option of moving to Portugal and becoming resident then taking out the pension money at 0%, then staying outside the UK for several more tax years to avoid a tax clawback that happens if you return quickly. Not really wise to assume that this capability will still exist in longer term planning scenarios, though, even though it does today.

When relatively close to pension age there is less comparative advantage for the VCT because the pension tax relief and 25% tax free lump sum is so close.

Pension money has an advantage of being protected from bankruptcy until the age at which it can be taken.

Pension contributions reduce income for child benefit and tax credit calculations and can have larger advantages there. They also reduce income for the over £100k personal allowance reduction situation where the marginal income tax rate is 66%. Pensions can be a really good deal for people in these niches.

Overall VCT buying has the potential to deliver massively more tax relief than pension use for a person who can recycle it enough times. It can also be used to make a tax gain when taking pension income at 20% and getting income tax relief at 30%.

This isn't sufficient reason to use only VCT investing. Diversification matters and VCT-only wouldn't be as diverse as is desirable.

I'm quite close to becoming 55% and am using both pension contributions via salary sacrifice and VCT buying. The salary sacrifice boosts the benefit of the pension, getting me almost 40% combined relief even in the basic rate range. On some of my income I get 12% employee NI, 40% income tax and 6.9% employer NI benefit for pension contributions because salary sacrifice is in the basic rate range while my total taxable income is still in the higher rate range. I've mostly used VCT buying for my basic rate income tax range, to mostly eliminate that tax. For higher rate I've used pension contributions. Of course I'm in the range where I can use enough pension contributions to do this, someone with a higher income would run out of usable pension contribution limit before getting to basic rate income tax.

Isn't there an option that allows you to use part, or all, of the tax credit in the prior year instead?  I was under the impression that if I bought some qualifying VCT shares today -- i.e. during 2015/16 -- that I could use as much as I like of the tax benefit against my 2014/15 tax return (the one that has to be submitted by next January).

If I have that right, then it becomes very easy to manage your tax bill as low as you like by making a substantial VCT investment this year.  Then once you put all the numbers into your tax return and see how big your tax bill would be without any benefit from your VCT investment you can decide to reduce your tax bill to whatever level you like -- presuming, of course, that your VCT investment was large enough.  Whatever part of the investment you don't, or can't, use against your 2014/15 tax will be usable in Jan.'17 when you submit your 2015/16 return.  By which time you will have made a 2016/17 VCT investment that you can use to reduce whatever remains of your 2015/16 tax bill.  Etc., etc.

Or have I got that all wrong?

PS.  While there would be a certain satisfaction in reducing my tax bill to nil, I'd never want to do that because, AFAIK, if I do that then all the charities I support would be unable to claim Gift Aid on my donations.  Not to mention that I'd have to notify them all that my Gift Aid declarations needed to be withdrawn.  And if I were taxed at above the basic rate -- before subtracting the VCT tax savings -- I'd also lose the benefit of any gift-aided donations to reduce my own tax.

And it might be an unnecessary concern, but I'd think that anyone with a substantial income who used VCT investments to reduce their tax bill to nil would be inviting HMRC to take a closer look at their tax returns.