Retirement planning is main use of VCTs, 56% of users

Albermarle

Jamesd - As you will know there are more ways than VCT to invest venture capital and get tax relief . i.e 
EIS,  SEIS  & SITR .
Did you look at any of these other three?
I looked at EIS once but it did seem complicated , especially as you are relying on the invested company to stay compliant within the EIS rules ( as well as not going bust hopefully) .
Probably it is all a bit out of my league , but would be interested in your comments.

jamesd

I looked at EIS one year because I left it too late to do VCT and unlike VCT you can do EIS for the previous tax year. I didn't proceed. I considered the odd SEIS but didn't do it. SITR just looks unattractive.

For me, the VCT limits and investment options are sufficient for the level or income and tax bills I've had. Particularly high earners might benefit from the others. Or that missed a year case I mentioned or the lower holding times.

Alexland

jamesd said:
Best I can suggest is to start with several and see how you get on with them. The amounts are probably not that large in relation to your total assets at this point so there's only limited potential for suffering. 

Gary1984 said:

You could probably split your £20k between 4 funds, say 2 generalists and 2 AIM funds. Perhaps Albion, Pembroke, Amati and Octopus AIM. 

Yes both good suggestions. Investing £20k, so £14k after the tax refund, would only be around 1% of our net worth but still that's a lot of money with a purpose - around 6 months living expenses from our 50-55 pot. I guess total loss is unlikely but poor performance relative to our existing ISAs is probably the greatest risk.
I have already looked into those VCTs in the past and honestly found none of them particularly attractive so I do worry the tax tail would be wagging the dog.
Buying £5k into each would probably fail my 'mindless admin materiality test' so are there any VCTs available to buy this tax year that offer a more balanced exposure? I might be tempted to buy others in future tax years to diversity although I guess that wouldn't be optimal as I know some give initial charge discounts to existing shareholders so it might be better to start small with a few of the big ones and eventually the mindless admin per VCT might become more worthwhile and you are right it would give instant broader diversification.
I can only really do this now in my 40s as I don't expect to have any income tax to refund when living off savings while waiting for pension access age.

jamesd said:
Adjusted net income used for the child benefit income level is taxable income, perhaps with the odd exception. ISA income is definitely excluded and since VCT dividends are tax exempt I expect them to be excluded as well.

I'd need to get to the bottom of this as I wouldn't want to have to sal sac more into my pension to compensate due to LTA risk and limited annual allowance. Maybe I just need to spend a few hours googling when the kids are in bed. I've never seen it raised as a question on the forum before.

Alexland

From my research I am now pretty certain that VCT dividends are not counted as taxable income towards the adjusted net income child benefit cap.
Digging into the Wealth Club VCTs currently on offer Baronsmead seems to tick the box for being big, established and widely diversified with around half the portfolio in management buyout companies when that was allowed under the old VCT rules. I can see there was a change in manager a few years ago but the overall total return has been reasonable both recently and over the longer term only slightly underperforming the FTSE World since launch.
I have missed the modest early bird discount but am still tempted subscribe £10k this year as the dividends alone at circa 7% would be a circa 10% pa return on the £7k it would cost (or just over £6.5k after considering the final dividend due in March). I would prefer the return as dividends as that helps with the cashflow to reinvest in further VCTs to refund more tax without raiding our ISAs too badly.
What do people think of Baronsmead and is the only difference between the two VCTs the age and fee structure? As they don't buyback direct from investors has anyone any experience of selling VCTs through their suggested brokers? Winterflood generally have a good reputation.
Also on claiming the tax refund I don't do self assessment and would prefer a cheque than a new tax code - do HMRC respect this request or do they tend use tax codes? If they adjusted my tax code would I then have a problem where I wouldn't pay enough tax next year to be able to claim the tax back on further VCT investments?

MisterNick

Alexland, 
I can't help on the Child Benefit cap, but I think you are correct in your thinking.
i haven't investigated Baronsmead, but as you say they are respected. The following thread may interest you, and you will see the second poster holds Baronsmead. The comments you make and the poster makes would not put me off buying them. https://www.lemonfool.co.uk/viewtopic.php?f=25&t=31259&sid=226fa0526a682b95b4e77c0ee12e5288 
I hold several VCTs and have more of a portfolio approach, so this probably influences my thoughts.
The target 7% dividend is on the high side with 4.5 - 5% being the norm in my experience. I hold Triple Point e shares, and they had a strategy of not paying a dividend for the first two years and not starting to return for 7 years. 
As I read it, the declared dividend would be paid to you if you are on the register before 22/1/22. Several new issues time them like this and this is an added incentive.
If the VCT has a dividend reinvestment scheme then how you take the dividends is down to you and you can usually change multiple times at any point during your ownership.
I haven't sold any of my holdings yet, so can't comment on the different methods, but given the length of time Baronsmead have been running I wouldn't have thought there was any difference in the two approaches, and that they have just outsourced the process.
This may help with understanding selling; https://www.lemonfool.co.uk/viewtopic.php?f=25&t=31599&sid=226fa0526a682b95b4e77c0ee12e5288 
This may help with Wealthclub; https://www.lemonfool.co.uk/viewtopic.php?f=25&t=32091&sid=226fa0526a682b95b4e77c0ee12e5288 I haven't used Wealthclub
I have only applied the tax credit to my self assessment, and therefore paid less tax. I have never done it through a change to my tax code or applied for the refund, but I think there is a form that can be completed. One of the accountants may be able to help with that
Hope this is of help
    

Alexland

Thanks yes the 7% dividend doesn't look sustainable from income and some of that is the return of capital but I guess if the VCT has done it's job of giving the upfront tax benefit and I would be selling it eventually anyway then it frees up the money to go into further VCT purchases.
I would be funding my £20/14k pa purchases from dividend income and withdrawing some from our S&S ISAs as all my wife's income goes into pensions and I sal sac down to £50k, pay some tax (which I want to get mostly back), fill our LISAs and then we live off the leftovers.
I know the trail commission may be better with platforms than WC but they are pretty focused on such investments so I will probably go with them for now.

deltrotter

I have recently started investing in VCTs and went with wealth club. They have been great thus far. Very simple to apply for VCTs through them and then you bank transfer the monies direct to the issuer using account details and reference numbers that wealth club provide.

I also opened an x-o account to build my VCT shares. Applied for Octopus titan VCT in November and received the share certificate and income tax certificate yesterday. Share certificate now in the post to x-o along with crest transfer form.

The reason I went with x-o is due to a lemon fool post saying you can leave orders to sell with the VCT issuer when they do buy backs. Note: I am five years of doing that...

Octopus dividend also arrived yesterday. £343 on the £5k of shares purchased in November.

Alexland

OK well just dipped a toe in the water by subscribing £12k into the first Baronsmead VCT so in my spreadsheet workbook I am reflecting that as an initial value of £10.5k after the 3% net initial charge and assuming that it eventually sells at a 10% discount so with the £3,600 tax refund due that's a gain of about £2.1k on the family balance sheet.

Of course the charges will be around 2% higher than I am used to paying so that's costing around £230 pa or maybe £1.1k over the 5 years so perhaps I will end up just £1k better off (or more or less depending on performance). As per my earlier post this whole thing could be a massive waste of time and admin but at least I will be getting around £500 back during this tax year as my first dividend and there's little harm trying it out.

NedS

As a VCT noobie, I'm watching with interest how this plays out. I am considering if this would be a useful strategy for extracting funds from the SIPP and getting the tax back as @jamesd has highlighted. As I'm a few years away from drawdown yet, plenty of time to research the idea.

Dead_keen

Thanks for the links.  I had a quick look at some of the EIS funds and the fees are incredibly high. One had a 25% carry on a deal-by-deal with no preferred return and no whole fund carry clawback.  I haven't looked at any of the VCTs yet.