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Why not more discussion on VCTs?

Newnoel
Posts: 378 Forumite

Hello
I have a lump sum to invest for retirement, and have already hit the lifetime cap on my pension so I am considering alternatives
I am looking at a VCT: probably Octopus Titan, as it seems to consistently give good dividend returns and the overall value is broadly flat:
https://www.wealthclub.co.uk/articles/vct-reviews/review-octopus-titan-vct/
VCTs are riskier than some (but not all) ISAs, but they offer the key benefit of a 30% tax rebate up front as well as tax free dividends. Sell at the end of 5 years and then buy into another new issue to get the tax rebate again.
I am surprised that they dont get more publicity and discussion, as it seems to be a very good investment vehicle, particularly when compared to the likes of an Innovative Finance ISA.
Am I missing something? Entirely possible
I have a lump sum to invest for retirement, and have already hit the lifetime cap on my pension so I am considering alternatives
I am looking at a VCT: probably Octopus Titan, as it seems to consistently give good dividend returns and the overall value is broadly flat:
https://www.wealthclub.co.uk/articles/vct-reviews/review-octopus-titan-vct/
VCTs are riskier than some (but not all) ISAs, but they offer the key benefit of a 30% tax rebate up front as well as tax free dividends. Sell at the end of 5 years and then buy into another new issue to get the tax rebate again.
I am surprised that they dont get more publicity and discussion, as it seems to be a very good investment vehicle, particularly when compared to the likes of an Innovative Finance ISA.
Am I missing something? Entirely possible
0
Comments
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There are a few good reasons below.
- They are much higher risk products than most ISAs
- They are complex products, not suited to unsophisticated investors.
- They have a minimum holding period of 5 years for the tax relief, which HMRC will reclaim if surrendered early.
- They have high charges, many of which can be opaque
- They are not covered by the FSCS
- They are illiquid, so can be difficult to sell after the minimum holding period. i.e. who is going to buy second-hand VCT shares off you, when new ones come with a 30% tax rebate?
- You can't sell a VCT and gain tax-relief again by puchasing the same VCT within 6 months.
All in all, a good investment fund can often provide as good as, if not better, overall returns, without all the restrictions that come with VCTs.
However, VCTs are becoming more popular with those with large pensions due to the decreased annual allowance and lifetime allowance restrictions on pension funding.
There is a large risk that someone will invest money in a VCT in order to reduce a tax bill, without noting that there is a significant risk that the invetsment itself may lose more than the tax bill.I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.1 -
When comparing VCTs beware the ones who flatter their returns by including the tax rebate in their headline figures. It annoys me.
If they are going to do that they ought to also include the likely loss when selling after 5 years too.0 -
As HH already mentioned, VCTs are typically only suitable for high networth sophisticated investors in the higher tax bracket. Hence for many people VCTs are not for them therefore there is little discussion on them in general!"If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett
Save £12k in 2025 - #024 £1,450 / £15,000 (9%)0 -
Not much to add. However, VCTs are generally considered to be an option for 1% of the population. Not really the typical consumer of this site.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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I'm in a similar position (well, my pension isn't that close to the LTA, but it wouldn't take a crazy growth rate to bring it there by the time I'm old enough to access it).
I do have a small proportion of my equity portfolio in VCTs.
A few pros and cons:
Pros
- The tax break (obviously)
- Many VCTs have produced good steady dividend streams and shown less volatility than mainstream equity investments
- Good transparency over the portfolio - you can see exactly what companies are invested in, and several fund managers have good investor days where you can meet some of the investee companies
Cons
- Strong exposure to the UK domestic economy
- Lack of liquidity and associated discounts to NAV when selling
- The charges - although not really unexpected for a private equity investment (see some of the discussion on this thread).
- If you look at historical performance for VCTs as a whole, there's a strong element of survivorship bias. I'm sympathetic to the view that that's because most of the managers that have prospered do have genuine skill, but there have been plenty of turkeys that no longer exist or are being wound down
- The most recent change to the rules prevents VCTs investing in the lower-risk things that they used to (e.g. hospitals, care homes, schools - which are all sources of steady income rather than real growth companies) and prevents them investing in debt-like rather than equity-like things. This may make historical track record less relevant (e.g. prior to the rule change I would have rated Albion and Mobeus similarly; in the new regime I think Albion are much better suited to the required style of investing than Mobeus are.)
- The above makes it a bit difficult to categorise VCTs and fit them into your asset allocation scheme. Funds that previously looked a bit like bond proxies or infrastructure ITs will now be more growth-oriented.0 -
By the way, there's a dedicated VCT board on Lemon Fool. Not super-active, but there's more VCT discussion there than here:
https://www.lemonfool.co.uk/viewforum.php?f=250
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