Question
If you buy VCT shares in the market then you obviously don't qualify for the up-front tax relief. However, how are dividends treated? Should they be included in your tax return or, as I believe is the case with VCT shares that were subscribed for on issue, can they be simply left off it?
My reason for asking this is that some established VCTs seem to offer a pretty good (and relatively stable) yield based on the market price and (as part of a sensibly diversified portfolio) might provide an opportunity to get a good income stream.Answer
You raise a very good point - 'second hand' venture capital trust (VCT) shares continue to benefit from exemptions to tax on both dividends and gains. The only tax benefit you won't enjoy, versus investing in a new issue, is income tax relief on contributions.
Of course, dividends are never truly tax-free, they're paid out of taxable company profits and deemed to be received net of basic rate tax, which cannot be reclaimed. Nevertheless, this could still prove a useful tax saving for higher and top rate taxpayers. And there's no need to enter this income on your tax return.
However, bear in mind the (potentially high) risks of VCT investing. Aside from underlying investment risk, VCTs often trade with wide spreads between buying and selling prices - some of the smaller trusts can prove especially difficult to sell. On the plus side this means you might grab a decent deal when buying second hand, but expect to be hit when trying to sell in future.
If you buy VCT shares in the market then you obviously don't qualify for the up-front tax relief. However, how are dividends treated? Should they be included in your tax return or, as I believe is the case with VCT shares that were subscribed for on issue, can they be simply left off it?
My reason for asking this is that some established VCTs seem to offer a pretty good (and relatively stable) yield based on the market price and (as part of a sensibly diversified portfolio) might provide an opportunity to get a good income stream.Answer
You raise a very good point - 'second hand' venture capital trust (VCT) shares continue to benefit from exemptions to tax on both dividends and gains. The only tax benefit you won't enjoy, versus investing in a new issue, is income tax relief on contributions.
Of course, dividends are never truly tax-free, they're paid out of taxable company profits and deemed to be received net of basic rate tax, which cannot be reclaimed. Nevertheless, this could still prove a useful tax saving for higher and top rate taxpayers. And there's no need to enter this income on your tax return.
However, bear in mind the (potentially high) risks of VCT investing. Aside from underlying investment risk, VCTs often trade with wide spreads between buying and selling prices - some of the smaller trusts can prove especially difficult to sell. On the plus side this means you might grab a decent deal when buying second hand, but expect to be hit when trying to sell in future.
Read this Q and A at http://www.candidmoney.com/askjustin/884/are-second-hand-vcts-tax-free
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