Investing in products aimed at high net worth investors when you aren't one (yet)

Malthusian

stoozie1 wrote: »

I personally don't feel that the fsa definition works for us as a couple and would be ok overriding it for that reason, but if there are perceived lower risk VCTs I would be happy to look into those as a possible alternative.

The point of the VCT tax breaks is to encourage you to invest in high risk small companies - if you find a VCT that purports to be "lower risk" you run the risk that HMRC decides it doesn't really qualify. We already saw this when schemes investing in taxpayer-subsidised renewable energy had their VCT status removed.

The bottom line is that old saying about the tax tail and the investment dog. If you are going to invest in VCTs you have to want to invest your money in small early-stage companies and accept that if you are unlucky you may lose money. The tax breaks are a secondary benefit.

bowlhead99

stoozie1 wrote: »

Perhaps I'll look for one that isn't.

Any recommendations?

Generally VCTs looking to raise money do so towards the end of a tax year because their investors like the ability to contribute to a new issue of shares and then very quickly afterwards stick in their tax return to claim back their income tax relief.

So during July (a while into the new tax year and a long way from the end of it) there are relatively few offers available. Buying second-hand shares off someone else on the stock market (rather than as a new issue from the fund manager concerned) does not get you any income tax relief. So really it can generally be best to wait until at least October before seeing who is fundraising, rather than picking from the relative paucity of options available right now.

Between October/November and February/March will be when the greatest choice is available. The reason to move earlier than just waiting til March is that some funds will hit their fundraising target and simply stop (they don't want more capital than they can practically get deployed), so for the popular ones, their doors may be closed before you get far into March, if not earlier.

However, if you don't have a large amount of spare capital and will just be putting in close to the minimum amount into a couple of funds, you do need to properly review what's on offer on the whole of the market so that you don't blow your load on investing in one fund and then later find five other ones you'd have preferred. For that reason, July is often way too early to make a decision unless you find something really compelling.

Clubfinance usually have a pretty up to date summary of who is in the market at a point in time (http://www.clubfinance.co.uk/Open-VCT.php)
and a separate page showing the latest information on what percentage of that target is already met - to give a broad indication of whether an offer is in danger of closing if you don't move soon. You'll typically find a lot more funds listed (and the ones that currently say "TBA", will actually have info on them) if you leave it six months or so from now.

bostonerimus

greenglide wrote: »

In the UK there is no such thing as a "tax efficient index tracker".

ISAs are equally tax efficient whether or not the investment in them is a tracker, managed fund or individual shares.

I was talking about funds I have invested outside of tax advantaged wrappers. For HNW individuals ISAs are meaningless as the limits are so low and so they have to use other tax saving strategies. For me I have substantial investments in regular accounts and so make those tax efficient.

AnotherJoe

bostonerimus wrote: »

I was talking about funds I have invested outside of tax advantaged wrappers. For HNW individuals ISAs are meaningless as the limits are so low and so they have to use other tax saving strategies. For me I have substantial investments in regular accounts and so make those tax efficient.

Depends on your definition of H in HNW and how it got there. In many cases saving through ISAs and their predecessors plus SIPPS is how they became HNW. Very few would start from say several million in non tax free and no money in ISAs they would build the two at the same time

bostonerimus

AnotherJoe wrote: »

Depends on your definition of H in HNW and how it got there. In many cases saving through ISAs and their predecessors plus SIPPS is how they became HNW. Very few would start from say several million in non tax free and no money in ISAs they would build the two at the same time

Yes HNW needs to be defined......for me that does not include people with a few million in pension and ISA savings. IMHO you're a HNW individual when pension and ISA limits become meaningless and you have to worry more about taxes on the vast majority of your income and investments that remain outside conventional tax wrappers.

I maxed out my tax advantaged savings in the US for a long time......we don't have anything like the ISA and tax advantaged saving is usually locked for retirement up until age 59.5. Therefore, I've also saved almost as much into fully taxable accounts and I have to be careful about the level of dividends that they produce so that I don't go into another tax bracket. However, I'm nowhere near needing trusts or insurance wrappers that some HNW people use to avoid tax and estate planning issues.

Thrugelmir

stoozie1 wrote: »

Grateful for any thoughts!

When you can be an angel and write a six figure cheque to invest in a Company start up. Not worrying if you'll ever see your money again. Then you a HNWI. In essence you are financially secure. There's no fast route to the top of the pile. More a mixture of good judgement and luck. Even the best concepts can struggle to gain market traction and become financially viable. Invest enough you may strike gold. There's plenty of people digging for the same pots though.