Earlier this year, I wrote about VCTs and how they can provide a new avenue for those individuals saving towards retirement who may get caught out by the freezing of the Lifetime Allowance for pension savings. For those who are new to VCTs, you can find out more information in this article – The VCT conveyor belt – a new string to your retirement bow.
Now if the last month tells us anything, we certainly don’t know what changes the current government may be making (and subsequently U turning on) to the pension allowances in their pursuit of growth. That uncertainty notwithstanding, VCTs can still provide some interesting opportunities for tax savings for those with high earnings.
But what about those who already hold VCT investments?
Well by being a bit more proactive, there are opportunities to unlock even more tax relief.
As with any tool, the real benefit comes from how you use it. You could simply invest into your VCT, claim 30% income tax relief and hopefully benefit from tax-free dividends in the future, or you could get a bit creative…
In order to keep the tax relief claimed, VCT shares must be held for at least 5 years (otherwise you must repay the tax relief to HMRC). However, after 5 years you can sell your shares with no capital gains tax liability.
Example:
In Year 1 to 5, you invest £50,000 each year and claim £15,000 income tax relief.
After 5 years, you sell your first VCT investment and reinvest the same £50,000 capital to reduce your Year 6 income tax bill.
You then repeat the process using Year 2 to fund Year 7, Year 3 to fund Year 8, so on and so forth.
Result:
By repeating the process over 10 years, you will have claimed £150,000 in income tax relief from a VCT portfolio of £250,000 – that’s 60% tax relief on the capital invested.
Next steps
If you have held your VCT(s) for 5 years or more, please book a free, no obligation chat with one of our financial planners here or call us on 0808 156 1176, to explore how you can unlock the power behind your VCT capital.
Warning notes:
This example is for illustration purposes only as it assumes no loss or gain on any of the investments.
Some VCT shares may be difficult to sell quickly as there is less of an active market than in bigger listed companies.
You should always seek professional advice before making a VCT investment.
