Can Venture Capital Trusts (VCTs) form part of retirement planning?
VCTs represent a great opportunity for clients if they have the right risk appetite.
Here’s a useful Financial Planning Idea if investors are looking to bolster their pension reserves…
What about investing into a VCT and then rolling the VCT into a Self Invested personal pension plan (SIPP) after the five year holding period?
This makes the total tax benefit look like this:
- 30% upfront income tax relief (investment must be held for 5 years)
- 25% SIPP subsidy when transferring the VCT straight into a SIPP as 20% tax relief is applied at source
- For higher rate tax payers, they get further higher rate tax relief when transferring the VCT into the SIPP
- Tax-free capital gains (when selling the shares)
- Tax-free dividend pay outs
These roll out as follows:
- This chart is for illustrative purposes only.
If the VCT is held for five years, even with no VCT capital growth over that period (and no tax-free dividends), and no growth in the initial 30% income tax rebate, the strategy still offers a strong return through the series of tax breaks. An investment of £100,000 could deliver an overall return of £180,000 after the five years.
There are many quality VCT products in the market place, all with differing risk profiles to suit. If you would like to find out more about VCTs or any other financial planning strategy, then please make contact Jason McGuigan on 01865 261100.