VCT and EIS investing

Anonymous101

Does anyone have any experience of investing in VCT's or EIS?


I'm in a position where I'm likely to max out my pension allowance this coming year and will be towards the upper limit for ISA investments for the year too. I contributed the full ISA allowance last year.


I'm therefore wanting to further my knowledge of other investment types which are available to me. I have been reading about investing in VCT's and would be interested to hear people's opinions on investing and how this type of investment might have been for you?

Reaper

They are OK particularly if you have maxed out other avenues as you have.

With VCTs they aren't quite as good as they look at first sight due to eye watering charges and poor price when you come to sell. However if you plan to buy and hold long term and are happy with roughly a 5% tax free return (feels like that's about average but I haven't stats to point to) then they have a place.

I have a fairly small holding of VCTs, but no EIS at present.

Anonymous101

Reaper wrote: »

They are OK particularly if you have maxed out other avenues as you have.

With VCTs they aren't quite as good as they look at first sight due to eye watering charges and poor price when you come to sell. However if you plan to buy and hold long term and are happy with roughly a 5% tax free return (feels like that's about average but I haven't stats to point to) then they have a place.

I have a fairly small holding of VCTs, but no EIS at present.

Yes I think I'd view them as somewhere to put any additional investment cash over and above the Pension and S&S ISA routes, not instead of.


What has been your strategy? To buy 2-3 different VCT's with a view to smoothing out any variation in returns?
Have you had any mature or sold any? What was the growth on your capital like? I'd be getting into them for the long term 10 years plus but would be interested if the growth was all due to the dividends or not.

dunstonh

They are higher risk and have a number of extra risk warnings and issues to be aware of. As such, they are an option that only around 1% of the population use. However, the scenario of having used up your pension allowances, including carry forward and being a higher earner is one that fits with their use. As long as you have the risk profile and understand them.

Reaper

Anonymous101 wrote: »

What has been your strategy? To buy 2-3 different VCT's with a view to smoothing out any variation in returns?

I looked for one as dull as possible! I opted for Proven about 8 years ago. I had intended buying a different one the following year but they always tempt existing holders with a discount so I topped it up instead. I haven't done any more since as other priorities came along.

Anonymous101 wrote: »

Have you had any mature or sold any? What was the growth on your capital like? I'd be getting into them for the long term 10 years plus but would be interested if the growth was all due to the dividends or not.

I was not really after growth (Proven's dividend target is 5% pa but of course depends how they do), preferring an established fund with conservative management since it is a potentially risky field. That had been what I was getting until last year when I got a huge special dividend from a sale and a consequential drop in price, so not quite as boring as I was expecting!

Anonymous101

dunstonh wrote: »

They are higher risk and have a number of extra risk warnings and issues to be aware of. As such, they are an option that only around 1% of the population use. However, the scenario of having used up your pension allowances, including carry forward and being a higher earner is one that fits with their use. As long as you have the risk profile and understand them.

I’m trying to understand them a little better. I’m certainly not the type to rush into any investments hence asking for as many opinions as possible.

At the moment I’m still have a reasonable amount of carry forward from last years pension and am not guaranteed to fill this years ISA so perhaps not use them this tax year but I want to be prepared if for any reason I find myself in that position.

I could always start working on Mrs. Anon’s allowances too. There’s still plenty of room there but the tax advantages of VCT’s have sparked my interest.

Anonymous101

Reaper wrote: »

I looked for one as dull as possible! I opted for Proven about 8 years ago. I had intended buying a different one the following year but they always tempt existing holders with a discount so I topped it up instead. I haven't done any more since as other priorities came along.

I was not really after growth (Proven's dividend target is 5% pa but of course depends how they do), preferring an established fund with conservative management since it is a potentially risky field. That had been what I was getting until last year when I got a huge special dividend from a sale and a consequential drop in price, so not quite as boring as I was expecting!

That has been very similar to a colleague of mines experience too.

As I’m learning more about them I’m starting to see them as more a tax efficient way to generate income. My current thinking is to invest fairly heavily in the last few years of work to benefit from the initial tax break then use the tax free income to live off whilst I try to withdraw from the pension minimising the tax liability as much as possible.

Reaper

Anonymous101 wrote: »

As I’m learning more about them I’m starting to see them as more a tax efficient way to generate income. My current thinking is to invest fairly heavily in the last few years of work to benefit from the initial tax break then use the tax free income to live off whilst I try to withdraw from the pension minimising the tax liability as much as possible.

Possibly, but income is less dependable than it used to be.

The 2017 budget forced both VCTs and EIS to take more risk and put an end to the ones who attempted to be pure income funds (eg buying into major infrastructure projects).

Legacy funds are still allowed to continue but new money has to follow the new rules.

It's worth having a read of this:
https://citywire.co.uk/wealth-manager/news/the-strange-slow-death-of-vct-income-investment/a1220278