My use of VCTs as part of retirement planning

MallyGirl

Thanks for this thread. Interesting reading.

MisterNick

Ok, I have caught up with this thread because of the new one, and apologies for saying I would post my returns and then not doing it.

Current share price = 18/12

Octopus Titan purchased in 2017 (i.e. 5 years up next year)

24,734 shares at a cost of £25,000

Tax relief £7,500

Dividends to date £5,688

Dividends declared but not paid (due 20/12/21) (Not included above) £1978

Total dividends £7,667

Current share price

Note 1 - may have an impact on NAV as it is a result of the sale of Cazoo.

Triple Point income “e” shares, purchased in 2017 (i.e. 5 years up next year)

24,009 shares at a cost of £25,000

Tax relief £7,500

Dividends to date £3,601

Dividends declared but not paid (due 20/12/21) (Not included above) £2,881

Total dividends £6,482

Current share price

Note 1 - TP did not start paying dividends up front until year 2 - stated up front.

Note 2 - The latest dividend will have an effect on NAV  as it is a special resulting from selling the Hydro power assets. 

Maven 3 purchased in 2018

3,657 shares at a cost of £2,500

Tax relief £750

Dividends to date £420

Current share price

Maven 4 purchased in 2018

3,162 shares at a cost of £2,500

Tax relief £750

Dividends to date £436

Current share price

Hargreave AIM purchased in 2018

8,280 shares at a cost of £7,000

Tax relief £2,100

Dividends to date £1,556

Current share price

Unicorn purchased in 2019

2,030 shares at a cost of £3,000

Tax relief £900

Dividends to date £324

Current share price

Proven VCT purchased in 2019

2,926 shares at a cost of £2,500

Tax relief £750

Dividends to date £336

Current share price

Proven G & I purchased in 2019

3,568 shares at a cost of £2,500

Tax relief £750

Dividends to date £347

Current share price

Current ROi’s including “declared but not paid and tax relief

Octopus Titan = 60.67%

Triple Point = 55.93%

Maven 3 = 46.82%

Maven 4 = 47.45%

Hargreave AIM = 52.24%

Unicorn = 40.83%

Proven VCT = 43.46%

Proven G & I = 43.92

I have left the share prices blank, but if you fill them in you will see that it will reduce the ROI, however, until I sell that is irrelevant unless you are a person of a nervous disposition.

It was nice to get the dividends for TP and Octopus in Dec, particularly as I am trying to unravel an asset rich / cash poor situation which has a tax implication

I have set this out as I have plotted it, but appreciate that it may not match some calculations, so please feel free to ask me to cut it as it suits your spreadsheets. 

BTW would also appreciate any critical analysis from james

Cus

Would there be a scenario where investing in vct instead of isa is logical?

deltrotter

Thanks misternick, very interesting.

Cus, excellent question. Beginning to think it myself.

But, we'll stick with Pension contributions, ISA, and then VCTs if anything left.

daveshep26

Cus said:

Would there be a scenario where investing in vct instead of isa is logical?

I think I've made a logical choice - but only on basis of my objectives being served and VCT being additive to other investment types.  VCT vs ISA isn't really that helpful a distinction, - does VCT plus ISA (plus pension obv) enable your objectives? is the better question.  

My numbers suggested ISA plus VCT.
1) I wanted to move out of another long-term asset - property  (buy-to-let) & I may consider another 'slug' around time of likely future downsizing (currently early fifties and in middle of putting kids through Uni)
2) You realise tax-free income in short-, medium and long-term at a fairly good rate of return;
3) If you're comfortable with long-term horizon involved, the very generous re-investment and additional tax relief opportunity (every 5 years) 'theoretically' increases attractiveness (it is compounding over the long-term - if it's magical in some contexts, I don;t see why that beneficial effect disappears elsewhere)
4) Well into retirement I will be in position of having to put new capital somewhere, VCT appears to be reasonable component for long-term investment 
5) I haven't taken anything away from previous / current ISAs or generally changing how much I think I'll be adding into the future

My overall numbers look OK to me, I will continue to review periodically, more ISA investment is already planned and no problem admitting it doesn't appear to be working as planned.  Generating tax-free income over all periods was my primary objective, five year period was essentially immaterial for me as it replaced property investment and I'm happy taking very long-term view.  I appreciate others may well choose a different portfolio

jamesd

Cus said:

Would there be a scenario where investing in vct instead of isa is logical?

Yes, because the three forms of tax relief can enhance the returns compared to the ISA: initial 30% from HMRC, tax exempt dividends - how many return much of their gains - and no CGT. But you do need to consider that these invest in smaller companies than found in normal ISA funds so thee's a need not to go to far over the top with them. To some extent that's self-limiting because the maximum initial tax relief is limited to your actual tax due for the year of purchase. Since you can sell after five years and not have to repay the 30% that lets you recycle the same money while repeatedly getting the initial tax gain.

For those looking to retire before 55 the VCTs like standard ISAs have the advantage of being accessible at any age, unlike a pension. The tax relief - particularly if you recycle the same money - can be greater than pensions. Barring lifetime or annual allowance considerations you'd still want to at least get all available employer pension matching every year, though.

You might note that while there are capital gains on the after tax relief purchase price, two of mine had a decrease in capital value on the undiscounted price. That's in part because they were paying out more in dividends than they were getting in returns. Which is good news if selling because you probably take a discount when selling so selling lower value is good.

ussdave

I'm sure I'm missing something both obvious and significant but...

Assuming no requirement to access the money within 5 years and an acceptance of higher risk, what is the advantage of ISA Vs VCT investment?  Personally I will be maxing out salary sacrifice until LTA becomes a consideration but I'm struggling to see why ISA would be a better choice over VCT.

MisterNick

I saw a new thread on the Lemon Fool this morning that was quite interesting.

https://www.lemonfool.co.uk/viewtopic.php?f=25&t=32594&sid=30497a262253e152b73ece365a95a094

I don’t totally agree with the poster on VCT’s but his experience of EIS’s, (SEIS’s), and personal loans are not really something for the feint hearted.

I think it demonstrates a good reason to have a portfolio.

i have looked at EIS and SEIS, but have passed so far. I am likely to have a large CGT bill at some time when our second house sells, but from what I remember they only allow you to defer.

In answer to a couple of questions on here, in the LF thread and on the other MSE thread my thoughts are as follows;

I don’t think VCT’s are administratively heavy. There is some research to be done at the beginning., the forms are relatively straight forward to apply, (I would do it through someone like Wealth club now), keep the tax certificate safe but may not be needed. Complete on 1st years tax return to get the 30%. No further need to advise HMRC. Sit back and await tax free dividends which do not need to be declared to HMRC. Admittedly I haven’t sold yet, but am not expecting it to be too much of a burden.

I accept the management charges for VCT’s are going to be more than conventional funds, as managing them is more complex and time consuming. i therefore don’t think they can be compared and I don’t see the fees as eye watering.

I too am looking to simplify things (which is taking its time) but I will likely use VCTs again to minimise tax.

i concur with Jamesd on recycling the same money, although, as he points out, there is a window where you cannot sell and buy the same VCT.

Every body accepts that VCT ’s move the notches higher in the risk category and there are examples of alleged dodgy management practices, but again similar allegations exist with fund management (Woodford). I think it is down to risk appetite but i wouldn't overegg the risks of well known VCT's. Equally they wouldn't be the first asset class that I would pile into, and they would also be a small proportion of my overall investments. 

There is discussion on ISA v VCT. I don’t currently hold ISA’s so would say there are reasons for holding VCT instead of ISA.