A recent news article said that many investors seeking to invest in Venture Capital Trusts (VCTs) are getting financial advice first – this is music to our ears!
One of the reasons for getting financial advice first could be that investors are looking to invest earlier on in the tax year, rather than at the end. This suggests that VCTs are becoming more mainstream as alternative tax efficient options to invest become less available.
In our previous blog we summarised the tax advantages of VCTs which help to offset the increased risks and make VCTs a more tax efficient way to save for your retirement.
You may want to consider investing in VCTs if you have used up your pension allowances and annual Isa allowance. VCTs can be useful for higher earners whose annual pension allowance has been tapered back, where adjusted income* exceeds £240,000.
You can claim up to 30% upfront income tax relief on a VCT investment, provided you hold your investment for five years.
Dividends from VCT investments are tax-free and do not need to be included on your tax return.
VCTs are inherently different to pensions and ISAs and shouldn’t be compared on tax benefits alone however where an investor has built up significant pension and ISA investments, a VCT could be considered as part of a tax-efficient portfolio for retirement.
VCTs have experienced momentum over the past few months, with several rounds of impressive fundraising.
If you’re comfortable with the additional risk, a VCT could improve diversification, generate tax-free income, and provide another way to invest tax-efficiently for retirement.
Understand the risks
It’s important to understand the risks before deciding to invest in VCTs. The value of an investment and income from it can fall as well as rise. You may not get back the full amount you invest.
Feel free to get in touch if you would like further advice on investing in VCTs for your retirement.
*Adjusted income is any taxable income (less certain reliefs)