VCTs and/ EISs

Alphamare

I'm trying to do some research on these
Is there a recommended platform to invest through?
Also do you have to put in a lump sum or can you drip free the investment?

Thank you

ColdIron

Either, have a play with this
http://www.comparefundplatforms.com/

coyrls

ColdIron wrote: »

Either, have a play with this
http://www.comparefundplatforms.com/

I don't think this is correct for VCTs and probably not for EISs. I know a bit about VCTs and so my answers apply to VCTs. You can only invest lump sums in VCTs and platforms only act as brokers for your application; the share certificates are issued direct to you. You can choose a platform based on the discount they offer for the particular VCT that you are interested in. I know Hargreaves Lansdown and BestInvest both act as brokers for VCT applications but there will be others.

Alphamare

Thank you both

Vct is out then as need somewhere to put £250 pcm.
I'll have a better look at EISs then

coyrls

Alphamare wrote: »

Thank you both

Vct is out then as need somewhere to put £250 pcm.
I'll have a better look at EISs then

I doubt that EISs will accept monthly contributions.

bowlhead99

With both VCTs and EIS you only get the income tax relief (a decent component of the total return) when you invest in newly issued shares. Neither lend themselves to small monthly amounts.

VCTs are lower risk than EIS. They are collective investment schemes which issue shares to you and then go and spend that money over a period of time by investing big chunks into companies that can use it. A VCT doesn't want to collect money from you in little bits from month to month - it needs to know how much capital it has got to play with in its investment strategy.

In theory, you could invest in VCT schemes by using your £250pm to buy second-hand shares on the stock market from VCT investors who want to exit small amounts of their holdings. You would still get tax free dividends over time, and hopefully gains which would be CGT free - but by not investing in any newly-issued shares when the VCT is fundraising, you are not getting any income tax relief. That means you are getting all the risks but not getting access to the rewards which compensate you for those risks.

If you have £250pm to risk in VCT the best thing to do is save it up over a tax year and at the end you will have £3000 which can be used to make a lump sum investment before the tax year ends (or just after the next one starts). That is around the smallest practical amount that you will find VCT houses will accept - some will be £5000 minimum or more. By investing right at the end of the tax year you can claim your 30% tax relief pretty much the next week and get your money back, which allows you to practically invest more than £4k out of your savings and get money back pretty quick so your net cost is only the £3k you wanted to spend.

Really you should not invest in just one of them, as you will get better diversification by spreading your money into more than one VCT at once. I suppose if you consistently invest into just one at a time at the end of each year, year in year out for a decade you will have ten of them with different managers at different stages of their life-cycle, but it is a decade long project to get there.

EIS for £250 a month (or £3k a year) is impractical. The annual limit for EIS is £1 million per person per year, rather than £200k for VCT or £15k for ISA. The scheme is designed for sophisticated and wealthy investors.

Unlike a VCT or an investment trust, an EIS investment is not a collective investment scheme traded on a stock exchange with easy purchase and sale. An EIS is an investment in a new issues of shares in an individual qualifying company. The company, when it has completed its fundraising and qualifies for the scheme, will issue you a certificate which you can use to claim your relief. But the company is not fundraising all year round so it doesn't want your £250 a month. And it usually doesn't want to bother with an individual investor who only wants to put in £3k. And you don't want to invest your £3k in just one single company anyway (presumably).

So, you may find that EIS and VCT are not really for you, for what you want to do.

If you do want to invest in VCT (e.g. maybe once a year as described above), you do not need to use a fund platform to access them, because new issues of shares are issued by the VCT itself rather than being bought off the stock exchange. They will send you a paper share certificate and tax certificate. However, it is better to go through an intermediary rather than simply fill in an application form and go direct, because when new shares in VCTs are issued they have an initial charge, and some of that charge goes to pay commissions to introducers and placement agents and advisors, and if you go via an intermediary, they will generally rebate up to 100% of their commission direct to you, so you get extra shares for your money than if you had gone direct.

VCTs also typically pay trail commission to the advisors and intermediaries for a few years after the shares have been issued. A number of the intermediaries will rebate a proportion of that commission to you too. I used Clubfinance for two investments last year, very simple process. Hargreaves Lansdown as mentioned by Coryls above would have given the same initial commission rebate but kept all of the trail for themselves. By using Clubfinance I get the exact same share certificate in my hand but will receive a few annual (taxable) trail payments over the life of the investment which HL would not have given me.

There are other intermediaries of course.

Jsscmm

Can anyone recommend a good place to start researching on which vcts one should be selecting?

coyrls

Jsscmm wrote: »

Can anyone recommend a good place to start researching on which vcts one should be selecting?

My advice would be that before researching you should have a view of what your goals are for holding VCTs, how much you are planning to invest and how much risk you are prepared to take. As Bowlhead says above, it would be a good idea to create a portfolio of VCTs to reduce risk. In constructing your portfolio you should make sure that the VCTs you select are not using the same investment strategy.


One of the (many) additional risks with VCTs is legislative changes. VCT rules change frequently to ensure that the state subsidised (through tax relief) money is invested in ways that aligns with government strategy and complies with European state support rules. As a practical example, a couple of years ago some VCTs specialised in Management Buy Out (MBOs) and marketed this strategy as reducing risk. The VCT rules have recently been changed to outlaw funding of MBOs and so these VCTs have to now change their investment strategy for future investments (previous investments are ok). By having a Portfolio of VCTs with different investment strategies you can reduce the potential impact on your portfolio of such changes.


Your next step should be to research which VCTs are looking for additional funding this tax year and, potentially, which new VCTs are starting, there is no point researching every possible VCT, as some will not be looking for funding this tax year. Then I would strongly advise that you go to the Web Site of each VCT provider and read the Prospectus and understand what their strategy is. Based on this initial research I would then draw up a short list and only then start to read third party commentaries on the website of various intermediary platforms that you can apply through. Read as many as you can but always be cognizant that the platforms want you to apply through them and so have an interest in selling the VCTs that they offer.


You should also give some thought to where we are in the tax year and when VCTs look for funding. I think (but you should do your own research) that there is a bias towards the second half and even final quarter of the tax year, when more people are looking to make a VCT investment. It may be worth waiting six months so that you have more choice. There are other timing considerations, some VCTs offer additional discounts for early investment and popular VCT offers are oversubscribed very quickly, so do it too early and you may have a reduced choice and do it too late and the choice may be reduced again and you could miss out on additional discounts.

Alphamare

Thank you so much!

That was extremely helpful and I will indeed do as you say with the £3000 each year. It's worth it to do for the tax benefits. And will probably do the same every year and slowly spread it like that. We are trying to be as diverse between the two of us as possible. There is £250 going into a tsb saver for this year so I will use that. I'll put the other £250 into shares instead.

Thanks again it's greatly appreciated!

coyrls

Alphamare wrote: »

Thank you so much!

That was extremely helpful and I will indeed do as you say with the £3000 each year. It's worth it to do for the tax benefits. And will probably do the same every year and slowly spread it like that. We are trying to be as diverse between the two of us as possible. There is £250 going into a tsb saver for this year so I will use that. I'll put the other £250 into shares instead.

Thanks again it's greatly appreciated!

Personally, I would be looking at S&S ISA and Pension arrangements before I looked at VCTs.

Alphamare

Thank you for that

We already have those arrangements in place