Should I minimize Income Tax?

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rogerbur
rogerbur Posts: 8 Forumite
in Savings & investments
I am a 40% tax payer. By utilizing tax refunds from Venture Capital Trusts etc I have considerably reduced my tax bill in the last 2 years.:j

What's the board's moral view.
'Am I morally right to aggressively utilize Government sponsorred tax breaks such VCTs & (S)EISs to minimise my tax bill to almost £0?'

My justification is that to get the tax breaks I am investing in UK small Companies. This is to the government's long term gain.

Your thoughts are welcomed.

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  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    rogerbur wrote: »
    I am a 40% tax payer. By utilizing tax refunds from Venture Capital Trusts etc I have considerably reduced my tax bill in the last 2 years.:j

    What's the board's moral view.
    'Am I morally right to aggressively utilize Government sponsorred tax breaks such VCTs & (S)EISs to minimise my tax bill to almost £0?'

    My justification is that to get the tax breaks I am investing in UK small Companies. This is to the government's long term gain.

    Your thoughts are welcomed.

    best to maximise your post tax returns consistent with your view of the risks involved
  • ColdIron
    ColdIron Posts: 9,049 Forumite
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    Nobody should pay more tax than they are required to by HMRC

    Morality is personal so there can be no 'boards view'. Your own judgement of right and wrong is up to you and does not need to be justified here or anywhere else

    Out of curiosity would try to pay more tax in some circumstances? Would you refuse ISA and pension tax breaks? Would you insist paying the maximum VAT on food, clothes or books etc etc?
  • racing_blue
    racing_blue Posts: 961 Forumite
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    I don't see a moral angle on this at all. Your behaviour is rational and in creating tax breaks, governments are trying to encourage this exact behaviour - investing in areas which otherwise would struggle because they are less attractive propositions.

    I looked at both VCTs and EIS a few years ago and decided that the risks to my capital seemed too great & I would just take the tax hit. What are your results so far?
  • jimjames
    jimjames Posts: 17,619 Forumite
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    Nothing wrong with using legal ways to reduce tax.

    No different to savings being put in the name of the spouse with lower tax rate so you don't pay more tax than needed.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • rogerbur
    rogerbur Posts: 8 Forumite
    edited 14 December 2014 at 5:18PM
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    Thanks for the responses.
    Answer to 'racing blue' my VCT history. I have been using VCTs for over 10 years.

    Income
    I have received a regular 5-6% pa TAX FREE dividend from all the VCTs I hold/held - occasionally higher - never lower than 4%.
    This 5-6% dividend is against the initial purchase prior to the 30% Tax Refund.
    Therefore against the actual cost to me of the VCT shares, I have actually received 7 - 8.5% Tax Free income.

    Capital.
    The share price of most VCTs remains basically flat as VCTs are required to return most of the trust's income as dividends.
    So (in theory) the purchase price less 30% tax Refund (say for example) £1.00 per share - £0.30 TR per share = £0.70 per share has grown to a sale price of £1.00 per share.
    This is what happened to the only VCT I have sold. After 8 years the £0.70 purchase cost was sold for £1.05p per share. Selling via a broker was as easy as any other share.

    By spreading my VCT holdings around several VCT companies I believe I have an asset class with excellent returns. Because of the regular Tax Free dividends and initial 30% tax refund but with lower risk or volatility than Shares.

    EIS & SEIS are a gambol. A gambol made much less risky by the tax benefits, but still a gambol.
    At its simplest. For every 10 EIS companies held. 8 can go bust so long as 2 double your money - thats the value of the tax breaks. Spreading risk is key

    I haven't been playing with EISs for long enough to provide a personal history
  • xylophone
    xylophone Posts: 44,412 Forumite
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    EIS & SEIS are a gambol

    A playful frolic?:rotfl:
  • edinburgher
    edinburgher Posts: 13,462 Forumite
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    xylophone wrote: »
    A playful frolic?:rotfl:

    I assume he gambols while reaping the rewards of his gambles? :)
  • TheTracker
    TheTracker Posts: 1,223 Forumite
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    edited 15 December 2014 at 12:48AM
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    I reckon the tax perks of VCTs and EIS are just about right. The populace neither neither floods to them or avoids them. Certainly you shouldn't lose sleep over morals, unless you are in a scheme that exploits that vehicles in some exotic way beyond the legislated intent.
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