VCT’s

Wolves68

Could somebody explain the tax implications of investing in a VCT:

After pension deductions, my income is approx 120K which means I lose the majority of my personal allowance. As I understand, my effective tax rate for the 20K above 100K is 62.5% increasing to 63.75% from April. If instead, I invest 20K in a VCT, what would my net contribution be taking into account I will now not lose any personal allowance? Thanks

pjread

VCTs don't reduce your adjusted net income I'm afraid, just give the flat 30% relief.  So it wouldn't impact loss of personal allowance.

Your best bet is probably to ramp the pension contributions up, especially if on salary sacrifice.

chucknorris

I have looked at VCT's many times, attracted by the 'greed' of reduced tax. but I have always come to the same conclusion that they are the tail wagging the dog! I mean from my perspective, yours might differ.

Alexland

chucknorris said:

I have looked at VCT's many times, attracted by the 'greed' of reduced tax. but I have always come to the same conclusion that they are the tail wagging the dog! I mean from my perspective, yours might differ.

I looked a few times and used to think that but then decided if it's only a small proportion of your portfolio then I don't see the harm as a VCT can give access to assets not found in a tracker fund etc.

The 30% tax refund isn't as good as it sounds as there is usually a couple of percent initial fee, you are buying in at NAV when they usually trade at a discount and the ongoing charges are on the higher side.

I recently purchased shares in an established well diversified VCT which holds a mix of a few hundred private, management buyout and AIM listed companies and so far it's going ok and the tax free dividend yield is pretty attractive such that the tax refund and dividends together might completely pay for the purchase cost within a decade if I keep it that long.