Sale of VCT shares

NottinghamKnight

Hi,
Does anyone have any positive experience with a platform for sale of vct shares, I have held for over 5 years now and so can sell without clawback on tax. I know that they are often illiquid (specifically talking about Albion here) and the companies do buy back but only on the open market. The shares have done fine, probably looking at around 5% loss since purchase but obviously received the 30% tax relief on purchase, and the obvious move would be to sell and then repurchase new shares to claim tax relief on new issue.

pip895

I hold some VCTs on HL - I didn't need the initial issue tax break so bought "second hand" - some have gained in value others lost but in all cases the loss is more than outweighed by the tax free dividends they yield.  I did sell some on one occasion - seemed to work like any other share/investment trust sale..

bowlhead99

NottinghamKnight said:

Hi,
Does anyone have any positive experience with a platform for sale of vct shares, I have held for over 5 years now and so can sell without clawback on tax. I know that they are often illiquid (specifically talking about Albion here) and the companies do buy back but only on the open market. The shares have done fine, probably looking at around 5% loss since purchase but obviously received the 30% tax relief on purchase, and the obvious move would be to sell and then repurchase new shares to claim tax relief on new issue.

As you mention, VCT shares in the secondary market can often be illiquid, and due to the fact that second-hand shares don't come with income tax relief while new ones do, there is often quite a discount to NAV when you are looking to sell. There can be quite a spread between market sell prices and buy prices due to the illiquidity, but both the buy and sell prices will be below the NAV (while the price of a new issue will be NAV plus a commission, although you will get tax relief on it).

As VCT shares trade on the London market, most brokers would be able to take your paper share certificates and sell them, or just dematerialise them so that they hold them as a nominee account on your behalf and you have online or phone access to put a sell order in whenever you like, just like for regular listed shares.  They don't need to be VCT specialists to do this.

One point if you are not aware, as you refer to 'sell and then repurchase new shares'... if your repurchase is in the same VCT you just sold out of (within 6 months before or after your sale date), you can't have income tax relief on the purchase - this is to stop you bed-and-breakfasting, recycling your tax relief instantly while effectively still having the shares in the same VCT again after only a short time of not having them.

It is fine to buy a different VCT with the proceeds though, or if you sold out next week your 6 months would be up with still more than a week to spare before the end of the 2020/21 tax year so you could get back in to the same VCT then, if their fundraising was still open.

Further small print is that if your buy is with a different VCT which then merges with the one you just sold (within two years of the sale), and you could reasonably have been expected to know they were going to do that, then again relief is denied because you're still keeping your exposure to much of the same underlying holding.

Given Albion have a whole load of VCT products, if you want to do your re-buying now rather than waiting six months it may be 'safer' to buy something from a different stable (i.e. not-Albion), just in case there are some mergers in the pipeline that have been announced but you weren't aware of and HMRC tell you later that they think you knew and were just trying to beat the system .  Much of the value that tips the risk of VCT investing from being too-risky to being acceptable is the tax relief on purchase, so it would be frustrating not to get it.

The relevant section about 'no bed and breakfasting within six months' is at https://www.legislation.gov.uk/ukpga/2007/3/section/264A

NottinghamKnight

Thanks Bowlhead, I've made small purchases over the last five or six years so a range of providers of which a selection of albion funds are the oldest. I made enquiries a few months ago but Covid seemed to limit options in terms of what brokers were offering to trade at all. Take the point about bed and breakfasting and hadn't consider what may constitute a future purchase but there are plenty of alternatives. As an investment I'm fairly happy with them, dividends are healthy and tax free, but just wanted to see whether I could sell and what a sell price would actually be, trustnet indicates current values to range from around a 5% profit to a 40% loss, excluding tax relief of course.. 

paddytt

Hi - I’m interested to know if you managed to sell your Albion VCT’s and how did you get on?
I also have some that will be up for sale in a year or so, and I’m interested to buy more now.
thanks
TT

NottinghamKnight

No, haven't progressed this. They have been held for over five years but I have enough pension tax relief that will be used to mean that I won't benefit from any repurchase, in another fund as above. I'll revisit this in the next few months and try and remember to update the thread if any useful information is gained.  

paddytt

Just a quick update on this:  I phoned HL and sold my Octopus VCT holding, it was very straightforward as Octopus were in buyback mode.  My Unicorn VCT holding was flagged for sale when their next buyback tranche opens.  I will keep my Albion holdings as they are performing well.  Considering the strong tax-free dividends, I think it is worth having VCT’s as a small part of a portfolio. 

Alexland

paddytt said:

Just a quick update on this:  I phoned HL and sold my Octopus VCT holding, it was very straightforward as Octopus were in buyback mode.  My Unicorn VCT holding was flagged for sale when their next buyback tranche opens.  I will keep my Albion holdings as they are performing well.  Considering the strong tax-free dividends, I think it is worth having VCT’s as a small part of a portfolio. 

My experience from VCT ownership is the strong dividends are often burning out the capital value which is fine if you are doing a rince and repeat every 5 years perhaps in some form of 'annual VCT ladder' and want your money returned as soon as possible after benefiting from the upfront 30% tax relief and want as little remaining as possible to suffer the high circa 2.5% pa ongoing charges and circa 10% discount to NAV when selling however if someone has remaining ISA and pension allowance then it's unlikely to be worth bothering with VCTs.