VCTs?

[trowelhead]

Hello!

Does anyone here invest in VCTs?

I'm interested on the basis of tax free dividends, and also tax relief. Speaking of which - how does it work? Can it be claimed in the same year or do you have to wait until year 3?

Let's assume i'm a HR tax payer, and i want to use some funds in my company that would attract 40% tax (20% corp, 20% personal/dividend), if i invest in a VCT, can i claim back the 30% relief immediately (as in only pay 10% it on the amount next tax return) or is the full tax due, then reclaimed in year 3?

P.S - I understand that these are quite illiquid and high risk

[Ginge R]

Are you also investing in other areas which might reduce your income tax liability? You'll only get the income tax relief if it's available to be set against any income tax liability that is due in the year you invest, *whatever* your rate. And even then, tax relief is limited to the amount which reduces your income tax liability to nil.

This means that the amount of income tax relief that you can claim is reduced by any pension contributions or even gift aid payments. This is because both result in an automatic recovery of basic rate tax in the year of investment by either the VCT, pension provider or the respective charity, and your liability is reduced accordingly then.

From an advisory perspective, you'd have to make the case that a VCT investment is better than more obvious choices, if you're not advised, you state you're aware of the risks.. I would be really, *really* aware of them! Bear in mind too, that tax credits on dividends are not repayable.