My use of VCTs as part of retirement planning

deltrotter

I started as I couldn't contribute further to my pension and I was facing a large tax bill some in the 60% bracket. (I had ignored it the previous year) It was quite difficult to make a rational decision over the tax saving though, but I am comfortable with going ahead..

Thanks master, this is the situation I find myself in. Tempted by the tax saving, and also trying to tell myself that this will be diversifying my portfolio as well.

deltrotter

One question I have is how easy is it to sell, in posters experience, they're vcts after five years to recycle into another.

I haven't checked daily trading volumes but for amounts of say £10k per vct can they be sold readily?

MisterNick

deltrotter said:

One question I have is how easy is it to sell, in posters experience, they're vcts after five years to recycle into another.

I haven't checked daily trading volumes but for amounts of say £10k per vct can they be sold readily?

I haven't got to the selling point, but will be able to do so next year.

My understanding is (and it may be a little rusty) that most VCT providers will buy back shares at NAV -5-10%. This was why I asked James whether he used that NAV or share price. I believe there is some liquidity in some VCT dealing, but I'm not sure which ones.
I have worked on the basis that you should be able to sell them, but you will get a discounted price for them.

On the question of recycling, I think it is possible, but there are either rules or warnings around selling the shares and then buying into the same VCT for the tax relief in the same period.

I bought them knowing that unlike other funds I couldn't really do anything with them for 5 years, and so I just take the tax free dividends. I record the purchase price, number of shares and dividends. I also look at the annual reports to see what companies I am invested in and which ones they are offloading.

You mention diversity, my wife and I have DC pensions and full SP in the future, We also have a buy to let so comfortable with the VCT's. We also have a classic car going through restoration, but that is seeming to be far from an investment
We are looking to sell the BTL soon and I was about to look into the question of EIS's or SEIS's and whether they will help with the sizeable CGT bill we are facing.

Don't take what I have said as fact as I have no practical experience of what happens when they are 5 years old, but may be some good starting points or opportunities for others to comment / correct..  

Gary1984

I'm new to VCTs but bought into Pembroke, Amati, Seneca and Octopus Titan last year. All have done well, especially Amati which is up 18% or something like that plus dividends on top.

I also found the lemon fool board useful when starting out. I prefer to invest in funds with a DRIS where your dividends get reinvested and a buyback scheme with max discount of 5% (though this is never guaranteed).

One thing I like is how it feels like proper investing in a collection of small companies that will take your money and use it to try and develop. This is what I imagined investments to be when I was young rather than say buy an Apple share from person A and hope I can sell it to person B for more money. Or god forbid speculate on a digital token.

deltrotter

Thanks guys, appreciate your responses.

Having to hold for 5 years is a good thing in my opinion, albeit I know that I could sell but lose the tax incentive.

Add for recycling, I say that in the loosest terms bearing in mind the rules on that.

Cheers

Del

MK62

One caveat on VCTs, especially for retirees......you need to have paid, or owe, at least as much tax as the 30% tax credit on the VCT in the tax year you invest.

So if your tax liability prior to purchasing a VCT is zero, you'll get no tax relief on the purchase price......effectively making them something of a risky proposition.

robtom91

Any tips on the best VCT?

jamesd

For pricing I used market price. Most VCTs will directly buy shares off you so you don't necessarily have to trade through the market, ask the particular VCT. They normally have a discount policy which is a discount relative to the NAV that they are willing to pay, selecting one with a decent policy, which is subject to change at any time, is part of picking which to buy. The ongoing tax exempt dividends help to contribute to a fairly thinly traded market otherwise, but transactions do happen and while buyers don't get the initial 30% they still do benefit from the tax free dividends and lack of CGT.

For bed and breakfasting prevention, you're not entitled to tax relief on a new subscription to a VCT for shares you've sold in the previous six months, except there's a bit of leniency for takeovers situations.

For tips, best to take a look at the Lemon Fool board where VCTs have some discussion. Comments seem generally quite well informed there and include people who attend AGMs and such, but do remember that there could be self-interest involved in any suggestions made. Which is best depends in part on your objectives since there are early stage ones and late stage the former with a high growth higher risk focus and the latter with more modest targets from more developed companies being invested in. dividend policies (often using them instead of accumulating capital gains) and buyback policies also matter.

deltrotter said:

Which broker do you use jamesd?

For sales, none, for purchases it's varied from direct to via middlemen paying a discount, most recently Wealth Club. At the moment I've no plans to sell because I'm happy with the dividends and general performance of the ones I've held for at least five years. But with around 40k of basic rate band pension withdrawing to cover (including increase for pension contributions) for a few years I'm buying fairly regularly so may find it sensible to sell something at some point. This is withdrawing taxable money, not spending money/income, just tax optimising.

deltrotter

Thanks jamesd

Why don't you recycle, within the rules?

jamesd

I'm happy with the level of the dividends and overall return and don't have an excessive for me amount of my total investments in VCTs yet.