Case Study:
VCT Rolling Program
The Client
Tony earns a large salary as well as significant bonuses, and wants to use a series of investments to continue claiming income tax relief in future years.
The Scenario
Tony chooses to begin a 10 year rolling VCT program with GrowthInvest. He decides to invest £200k per annum across a portfolio of VCTs. Each year that he invests, he is able to claim £60k of tax relief for that year. He will also benefit from a tax free dividend of £10k for every £200k he invests.
After 5 years
Tony will have invested a total of £1m, received tax relief of £300k and dividend income of £150k.
In year 6
After his first investment reaches the 5 year mark, Tony can chose to sell these shares. He could then use the proceeds to invest into a new VCT, using his first year’s capital to claim fresh income tax relief in year six. In the following year (year 7) he can sell and reinvest his year two investment and again claim further tax relief. And so on.
At the end of year 10
If Tony has sold and reinvested all of his investments from the first 5 years, he will still have invested a total of £1m. However, he will have received £600k in tax relief and £400k in dividends. Tony’s total net outlay would then be zero, but he still holds a VCT portfolio worth £1m, this will yield him £50k per annum until he decides to sell them.
Tony's VCTs
ASSUMPTIONS
Investment Amount :
Target Dividend Yield:
Income Tax Rate:
£200k per annum
5% per annum
30%
NOTE: The above table is for illustrative purposes only, representing a simplified example of the economics of conducting a VCT rolling program. The target dividend yield is intentionally set below current market rates, actual realised dividends may well differ. Likewise, the above example does not factor in the impact of adviser and/or product charges, NAV performance or indeed any discount to NAV applied upon sale.
