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Combining SIPP & VCT Tax reliefs

Sophisticated and complex high-risk tax-sensitive investments in small companies: handle with care
shootingstar
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Combining SIPP & VCT Tax reliefs

#268564

Postby shootingstar » December 2nd, 2019, 4:56 pm

Fellow VCT investors, I appreciate everyone's income and tax circumstances are different. However i am actually curious to what extent people here are in practice combining the tax reliefs offered by SIPPs and VCTs? or viewing them quite separately

I have personally invested in VCTs since 2007 and recall that back then Octopus marketed their Apollo VCT in an interesting manner.. claiming that it was possible to achieve a minimum after tax return of 38% per annum over 5 years. The times covered the strategy here https://www.thetimes.co.uk/article/how- ... 59m6rmwdvh

I still have the slides they used. In short they proposed a strategy where

1) you put money into a SIPP e.g £39k and receive tax relief (partly in the SIPP itself £11k, partly via tax return outside of the SIPP wrapper £9k)
2) the grossed up money in the SIPP after the basic tax relief is applied (£50k) is used to buy assets held in your own name outside the SIPP e.g. ordinary shares. This results in a cash position outside of the SIPP equal to the money that had been grossed up in the SIPP wrapper (£50k)
3) that £50k cash position is then used to invest in a VCT providing 30% additional tax relief (£15k). Octopus pitched that the £50k into their Titan VCT would be lower risk with investments structured as debt to try and avoid capital impairment of the VCT over the minimum 5 year hold period
4) after 5 years Octopus were proposing that Titan converts to an investment trust to enable better liquidity (i have no idea if that actually happened) the idea was then that the SIPP would receive the investment trust in specie which qualifies for further tax relief. In practice i think this part could be done in a different manner e.g, just sell the VCT at a hopefully decent price and put the proceeds into your SIPP

investing in a SIPP has become less attractive for very high earners in recent years (and rules on VCTs have changed to make low risk investments inside the VCT less possible)...but i am currently trying to work out myself via various channels if the principles that Octopus suggested can be applied are still applicable today.

If anyone has any thoughts or wants to see the original slides then please pm me

Kidman
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Re: Combining SIPP & VCT Tax reliefs

#268583

Postby Kidman » December 2nd, 2019, 5:45 pm

shootingstar wrote:4) after 5 years Octopus were proposing that Titan converts to an investment trust to enable better liquidity (i have no idea if that actually happened)

Octopus quickly dropped the Titan conversion idea so it never happened.

I haven't heard about this 'scheme' since then and suspect that HMRC didn't like it so warned companies off from promoting it.

It may be possible that it could still work but I suggest that VCTs are higher-risk and are paying fewer regular dividends than then so the return could end up far poorer than hoped for.


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