Venture Capital Trusts

mills112

I have invested in REITS and ETFS but I am looking into VCT for their tax efficiency.

I am aware that they are higher risks but wondered if anyone has invested in one of these funds?  There are quite a few to choose from on Hargreaves Lansdowne.

I also read that you need to hold the fund for at least 5 years in order to qualify for tax relief, I am assuming that is for exemption to CGT?

masonic

I've used them in the past. The 5 year holding period is so HMRC doesn't claw back the 30% tax relief they credit you with for investing.

mills112

masonic said:

I've used them in the past. The 5 year holding period is so HMRC doesn't claw back the 30% tax relief they credit you with for investing.

When I read up on VCT, there was also Enterprise Investment Scheme and Seed Enterprise Investment Scheme.  Have you invested in those two?

What was your experience with the VCT that you had invested in, did you think they were a good investment?

masonic

mills112 said:

masonic said:

I've used them in the past. The 5 year holding period is so HMRC doesn't claw back the 30% tax relief they credit you with for investing.

When I read up on VCT, there was also Enterprise Investment Scheme and Seed Enterprise Investment Scheme.  Have you invested in those two?
What was your experience with the VCT that you had invested in, did you think they were a good investment?

No, I've not touched the other schemes. They tend to be wrappers around single company investments, and I wouldn't be willing to allocate enough to such high risk investments to build a suitably diversified portfolio.

My experience was very good with VCTs as I invested in some with a legacy asset-backed portfolio where the investments were much lower risk than would be allowed today. The tax free dividends over 5 years repaid just over than half my net investment cost and I ended up with a small net capital gain, so my annualised return just crept over the double digit boundary. I sold the last of my holdings in 2022, by which time propositions were looking a lot more risky and having aged a few years I was more comfortable bringing down my tax liability through salary sacrificing into my workplace pension (the introduction of pension freedoms making a difference to how that pot could be used). It's also a bit awkward that you have to wait 6 months before you can repurchase (with tax relief) shares in a VCT you previously sold, and that made it hard to stay invested as the number of suitable candidates dwindled.

DRS1

@masonic was either very lucky or very canny.  VCTs are an excellent way to lose money.  The rules changed a while ago to make them even better at losing money.

If you can contribute to a pension then I suggest you get your tax relief that way.

Albermarle

mills112 said:

masonic said:

I've used them in the past. The 5 year holding period is so HMRC doesn't claw back the 30% tax relief they credit you with for investing.

When I read up on VCT, there was also Enterprise Investment Scheme and Seed Enterprise Investment Scheme.  Have you invested in those two?

What was your experience with the VCT that you had invested in, did you think they were a good investment?

I have not used EIS or SEIS schemes but a couple of years ago I did look into them.

Just reading about all the rules and admin needed gave me a headache. 

I remember one point standing out was that to get the preferential tax treatment, the company you were investing in had to stick to various criteria for them to qualify for the scheme. It seemed possible to invest your money and then later find that the company was not able to issue the correct paperwork for one reason or another, so no preferential tax treatment. I may not have remembered that 100% correctly though.

Eyeful

mills112 said:

I have invested in REITS and ETFS but I am looking into VCT for their tax efficiency.

I am aware that they are higher risks but wondered if anyone has invested in one of these funds?  There are quite a few to choose from on Hargreaves Lansdowne.

I also read that you need to hold the fund for at least 5 years in order to qualify for tax relief, I am assuming that is for exemption to CGT?

1. Are you happy to take on the higher risks involved?.
2. Do you really want to pay all the higher charges?
3. What % of your wealth are you thinking of diverting into VC's?

Remember do not let the tax tail wag the dog!

mills112

masonic said:

mills112 said:

masonic said:

I've used them in the past. The 5 year holding period is so HMRC doesn't claw back the 30% tax relief they credit you with for investing.

When I read up on VCT, there was also Enterprise Investment Scheme and Seed Enterprise Investment Scheme.  Have you invested in those two?
What was your experience with the VCT that you had invested in, did you think they were a good investment?

No, I've not touched the other schemes. They tend to be wrappers around single company investments, and I wouldn't be willing to allocate enough to such high risk investments to build a suitably diversified portfolio.

My experience was very good with VCTs as I invested in some with a legacy asset-backed portfolio where the investments were much lower risk than would be allowed today. The tax free dividends over 5 years repaid just over than half my net investment cost and I ended up with a small net capital gain, so my annualised return just crept over the double digit boundary. I sold the last of my holdings in 2022, by which time propositions were looking a lot more risky and having aged a few years I was more comfortable bringing down my tax liability through salary sacrificing into my workplace pension (the introduction of pension freedoms making a difference to how that pot could be used). It's also a bit awkward that you have to wait 6 months before you can repurchase (with tax relief) shares in a VCT you previously sold, and that made it hard to stay invested as the number of suitable candidates dwindled.

Yeah, I read that the government is making it harder to qualify for CVT tax relief unless the funds are actually taking a lot more risks to be awarded the accolade of qualifying CVT.  Good to hear that you made a profit from it.

mills112

DRS1 said:

@masonic was either very lucky or very canny.  VCTs are an excellent way to lose money.  The rules changed a while ago to make them even better at losing money.

If you can contribute to a pension then I suggest you get your tax relief that way.

yeah, I read that the rules on them qualifying for tax relief has meant they have to be much more risky than before and not to expect any capital gains from them as more than likely you will make a capital loss.  The profit is the 30% tax relief and that's about it and not to expect much dividends either, although looking at the info on these funds, they always state aim of distribution to be 5%-6%, but whether they actually achieve that aim I haven't yet looked into their historic dividends.  Do the funds disclose past dividends?

mills112

Eyeful said:

mills112 said:

I have invested in REITS and ETFS but I am looking into VCT for their tax efficiency.

I am aware that they are higher risks but wondered if anyone has invested in one of these funds?  There are quite a few to choose from on Hargreaves Lansdowne.

I also read that you need to hold the fund for at least 5 years in order to qualify for tax relief, I am assuming that is for exemption to CGT?

1. Are you happy to take on the higher risks involved?.
2. Do you really want to pay all the higher charges?
3. What % of your wealth are you thinking of diverting into VC's?

Remember do not let the tax tail wag the dog!

Yes, very good point about not letting the tax tail wag the dog!

Reaper

I have a few old VCTs. Note the charges tend to be high and when saying how well they have performed to date they sometimes include your tax relief in the growth figures which annoys me. Also the market is illiquid so you many struggle to get the current price when you come to sell. I haven't bought any recently. I am not ruling it out but there are safer, simpler options that need filling first.