VCTs, SEIS or ISA?

System

Bowl - I didn't realise it meant winding up on their end, that makes it a lot more viable, if fees are OK and the market and rules are tolerable to me I might eventually do it once my isa is sufficient . I'm erring away from eis and SEIS due to taxable dividends, I assume the tax free status of VCTs mean they won't affect child tax credit but I'd have to phone them to really know (they don't say in the general information)

The way I would use an isa is not too different - small companies, long outlook

Could someone have a taxable foreign income from assets though? Say I had funds paying into a Canadian account and so treated like an income to that country

bowlhead99

MatthewAinsworth wrote: »

I'm erring away from eis and SEIS due to taxable dividends,

EIS and SEIS are generally not going to pay you dividends anyway because the whole point is that they are fledgling companies who are relatively newly formed and need capital to grow which is why they are raising money from EIS investors in the first place, and they know the EIS investors would prefer to get their returns via tax free capital gain rather than by dividends. So, dividend being taxable is moot.

I assume the tax free status of VCTs mean they won't affect child tax credit but I'd have to phone them to really know (they don't say in the general information)

Long term, CTC will be part of Universal Credit, and UC reduces the more capital you have. VCTs and EISs count as capital just like ISAs and bank accounts.

So, given you can't currently afford VCTs or EISs anyway, and if you could you'd be holding them for the long term by which time UC would be in, it doesn't seem like it is worth the phone call.

Could someone have a taxable foreign income from assets though? Say I had funds paying into a Canadian account and so treated like an income to that country

If you have money paid into a Canadian account it is not treated as Canadian income any more than receiving Canadian or US investment or employment income into a UK bank account magically turns it in to UK income. The source of the income is what's relevant.

If you have investments in Canadian companies and you are a Canadian resident you will pay Canadian income tax on dividends from them. If you are not a Canadian resident you will suffer a small withholding tax when the dividends are sent to you, regardless of whether your bank account is UK or Canada, (which you can knock off your UK tax bill on the same income).

If you were a Canadian resident who didn't want to pay Canadian income tax on your dividends, you could hold your investments via a TFSA which is their equivalent of an ISA and can only be opened by a Canadian resident just like our ISA can only be opened by a UK resident.

If you were a UK resident it wouldn't be very sensible to become Canadian resident just to apply for a TFSA, because then as a Canadian resident you would have to pay Canadian income tax on your worldwide income. Also it wouldn't be very sensible to become Canadian resident for a year, open the TFSA, then come back over here to be UK resident again, because the fact that the dividends were avoiding Canadian tax wouldn't stop them being UK taxable; you would be better to hold them through a UK ISA instead.

International tax codes are complex and if printed out would run to millions of pages worldwide. If you have a lot of time to read them, or you have a great deal of money, you and your advisors can look for opportunities to minimise your overall taxes amongst that lot, and use your vast wealth to restructure your affairs internationally, perhaps changing your residence and re-domiciling where necessary.

If you don't, and you are starting from a knowledge base of zero, and you don't even have enough money to get out of tax credits let alone employ international tax counsel, and you don't have any international assets so it is all theoretical anyway, best to just drop the line of questioning.

bigadaj

Matthew, these are supposed to be for experienced investors with significant capital elsewhere, it sounds like you are some way away from that situation.

Bowlhead - there are plenty of reports of people manipulating the system to the extent that people with basic earnings in the higher rate are salary sacrificing pension contributions down to minimum wage, partially because of the ability to gain tax credits and other benefits. People will play the system where ever they lie on the income spectrum I suppose.

bowlhead99

bigadaj wrote: »

Bowlhead - there are plenty of reports of people manipulating the system to the extent that people with basic earnings in the higher rate are salary sacrificing pension contributions down to minimum wage, partially because of the ability to gain tax credits and other benefits. People will play the system where ever they lie on the income spectrum I suppose.

Yes of course people will (and should) use the rules available in the system to improve their position (which Matthew is doing with his pension to avoid income tax and taxcredit giveback, for example).

There is nothing fundamentally wrong with playing the system within the limits the government gives you. They set allowances and limits to encourage certain behaviour (in the case of pensions, contributing to a pile of assets you can access in old age ; in the case of VCT, creating investment capital for young growing business which might not otherwise be forthcoming without the relief; etc).

If you have enough income / wealth / flexibility to maximise your reliefs or allowances by doing some research or paying for advice and perhaps juggling stuff about, it's fair enough - if the government doesn't like it they can change the rates, allowances, thresholds, reliefs etc until they raise the tax they want to raise and broadly get the behaviours they want.

If you have more assets and international affairs you can work more broadly in your planning and arbitrage the tax opportunities presented by different world governments - though Matthew is not in that position, is my point.

System

If residency is a condition for a wrapper I certainly won't be doing that, I'm not aware of anything more generous than the UK offering anyway

And I do tend to be a bit theoretical, I suppose it helps understanding, but there's always the chance of finding something useful. Good point bowl about UC coming in, that's reason enough to pension now while I can, as I think we'd exceed the tighter earning limits of UC

I think the government assumes a certain cost of living when they set tax credit thresholds, but we don't rent, drink or smoke, and that's why we can save. The system isn't sophisticated enough to look at cash flow or the insides of the pension. Politically they might want to punish exploitation, but as you say they're trying to encourage good habits and they could just change the rules if they don't like what's happening.

I also see a long term gain for the taxpayer in what I'm doing, I'll probably have to pay my own care home fees, saving the government loads cone the time, and I might be pushed into higher rate of tax on drawdown, due to performance

Good point too bowl that eis will focus on capital gain

bigadaj

bowlhead99 wrote: »

Yes of course people will (and should) use the rules available in the system to improve their position (which Matthew is doing with his pension to avoid income tax and taxcredit giveback, for example).

There is nothing fundamentally wrong with playing the system within the limits the government gives you. They set allowances and limits to encourage certain behaviour (in the case of pensions, contributing to a pile of assets you can access in old age ; in the case of VCT, creating investment capital for young growing business which might not otherwise be forthcoming without the relief; etc).

If you have enough income / wealth / flexibility to maximise your reliefs or allowances by doing some research or paying for advice and perhaps juggling stuff about, it's fair enough - if the government doesn't like it they can change the rates, allowances, thresholds, reliefs etc until they raise the tax they want to raise and broadly get the behaviours they want.

If you have more assets and international affairs you can work more broadly in your planning and arbitrage the tax opportunities presented by different world governments - though Matthew is not in that position, is my point.

Governments should certainly make the rules as they see fit, and peoples opinions will vary, but the ability to reduce income voluntarily to gain tax credits is something a that I think the average person would be surprised is possible.

It's something that they should be looking at in my opinion, others may not agree, but is fundamentally a result of the over complicated combination of tax and benefits system that the uk has achieved in 2017.

Good for accountants though I suppose.

mostwelcome

joujou wrote: »

Can you recommend some good VCT/SEIS platforms?

Cant see if anyone replied to this, so, belatedly (sorry)…
If you already have Hargreaves Lansdown account, they are large broker of VCTs so that might be convenient. However they don't do EIS or SEIS.

Wealth Club, a relatively new service set up by some former HL, does all three.

There are others including Clubfinance although its more of a discount XO service not really a platform.