What if.....

[flyer61]

Mr Corbyn gets the keys to 10 Downing Street and Mr MacDonald has an emergency budget as fast as he can. In amongst the vast redistribution (punishment tax's) that are meted out is a couple of lines where ALL tax reliefs associated with VCT's are scrapped.

What will the VCT's become? Worthless? expensively managed Investment Trusts? Over the last few decades they have 'morphed' considerably. Where would they 'morph' to now?.

The tax tail is wagging my dog and am trying to weight up the risks going forward. It might be hypothetical as it appears the great British public don't really take to Mr Corbyn. It could be My Javid who does it anyway!

Anybody any thoughts?

[Arborbridge]

Anybody any thoughts?

Yes: relax about it all.

[scotia]

Mr Corbyn gets the keys to 10 Downing Street and Mr MacDonald has an emergency budget as fast as he can. In amongst the vast redistribution (punishment tax's) that are meted out is a couple of lines where ALL tax reliefs associated with VCT's are scrapped.

What will the VCT's become? Worthless? expensively managed Investment Trusts? Over the last few decades they have 'morphed' considerably. Where would they 'morph' to now?.

The tax tail is wagging my dog and am trying to weight up the risks going forward. It might be hypothetical as it appears the great British public don't really take to Mr Corbyn. It could be My Javid who does it anyway!

Anybody any thoughts?

I'm always puzzled as to why anyone imagines that there will be a Corbyn Government. Even if Corbyn gets back into government, at least three quarters of his MPs think he is unfit for the task, and will not support his wildest plans. Remember that he regularly voted against Labour party policies, so what's sauce for the goose is sauce for the gander. And if he mimics Boris and attempts to sack the dissenters then he won't last long.
But coming back to the possibility of any party attempting to remove the tax advantage of VCTs - why would they? Its a minority area which would not provide a substantial immediate benefit to the exchequer, and it would make life more difficult for start-up companies on which our future prosperity depends. Do you think Corbyn would try to remove the tax break simply out of spite? I think he will have much bigger problems to think about. And as for a Boris government, particularly after a hard Brexit and all of the spending pledges he has made, then I fear when economic reality strikes home, he too may be scratching around to increase the tax take - but VCTs are small fry, and any interference will probably affect mainly tory voters. No - I think they will be left untouched.
I think the major risks to VCTs going forward are those introduced in the last government update - requiring them to focus on early stage companies. So I don't think VCTs will prove as profitable an investment as they have been in the recent past. Are they worth investing in? Some, on this board, would probably say no. I'll still be investing in them, but probably only to the extent of replacing the 5-year expired VCTs which I am selling.

[UncleEbenezer]

I'm always puzzled as to why anyone imagines that there will be a Corbyn Government.

Same reason the Labour vote rose in 2017. Because the alternative (in Englandshire) is so dire and people are desperate to keep them out. Of course that worked both ways, with the Tory vote built on those terrified by Corbyn.

Right now I'd treat a Corbyn government as the lesser of evils: max five years of his nonsense, vs blighting the rest of my natural life. And in any case, Corbyn is heavily constrained by his own party Establishment keeping him on a short leash. His "momentum" is relatively new and unformed; Boris's is much deeper with roots as far back as the 1980s: just look at his party's reaction to his "turbulent priest" rabble-rousing at his conference on Sunday!

I think VCTs would pass under the radar, as they have done at politically-challenging times in the past. The up-front tax break and investment limit might change at any time, but there's a poison pill to removing ongoing benefits: namely, someone in the press would be sure to point out that it would introduce a new tax break, as rich investors could claim capital losses against CGT. If they were ever to lose the breaks that make them viable, I'd expect consolidation and wind-up with return of assets to investors.

[barchid]

Uncle
I have also been pondering on this conunderum and largely came to the same conclusion as you have. One reason I thought this way was because HMRC conducted a quite exhaustive investigation into the relative merits of SEIS, EIS & VCT's, named "patient capital report" in which VCT's were deemed to be less efficient at creating new jobs than EIS, but this was balanced off by the CGT loss relief (against income tax) and the CGT deferral allowed on an EIS, neither of which are currently enjoyed by VCT's.
The report was really very upbeat on the need to encourage patient capital, and as you point out, given the relatively small pool these schemes represent, and the "new rules" restricting MBO's etc do now focus the new cash raised on projects HMRC wish to encourage I think they will much more likely go after people such as landlords to raise cash from the investment area. It is a long time ago but I can remember 2% ad valorem being incurred on equity purchases in the mid 1970's, a simple tax to raise quickly !
But Corbyn/McDonnell wise you can never say never, so an element of caution needs to be employed IMHO

[BusyBumbleBee]

Right now I'd treat a Corbyn government as the lesser of evils: max five years of his nonsense, vs blighting the rest of my natural life.

My word, UncleE, you have a short memory. When we had the man from the Manse first as chancellor and then as PM (albeit for longer than 5 years) he did to our economy such damage that we are still trying to recover. This austerity we have today is as a direct result of his mismanagement.

Remember the note left for the succeeding government : something like "sorry - no cash left"

And of course - look what he did to PEPs, TESSAS and Pensions and the old folk who relied on dividends to supplement their pensions by 'abolishing advance corporation tax which was of course refundable in most of those circumstances.

Tradition has it that a government does not make retrospective changes to the law. But the change in the law imposed by this government came perilously close to that. But at least VCTs were not forced to change their asset based investments but they were forced to make other changes which did have a retrospective effect on the cash already held by VCTs.

Let us hope that if ever Corbyn got in he would respect that tradition : but he could abolish income tax and replace it with, say, the "Peoples' tax" and then VCTs would still be income tax free but not "Peoples Tax" free.

Be very careful what you wish for.

[moorfield]

The tax tail is wagging my dog and am trying to weight up the risks going forward.

Anybody any thoughts?

You, and all LFs, can mitigate this risk very easily.

Don't vote Labour.

[scotia]

When we had the man from the Manse first as chancellor and then as PM (albeit for longer than 5 years) he did to our economy such damage that we are still trying to recover. This austerity we have today is as a direct result of his mismanagement.

Interesting view - and the rest of the world didn't suffer - or was Brown responsible for that? Lets recap - in the US the banks irresponsibly lent mortgages that would never be repaid - and they covered it up by packaging them in ever deeper financial products. When the scheme was finally exposed, the banks around the world started to collapse - beginning with Lehman Brothers in 2008. A ripple effect continued across the world, with governments apparently unable or unwilling to act- until the UK government stepped in and shored up the British banks, and other countries followed suit. The resulting world recession bit deep, but we certainly were not the worst affected. As for Austerity, I have been listening incredulously at the spending spree Boris is proposing. Spend and Tax may be an insult hurled at Labour, but Spend, Spend, Spend without Tax seems somewhat flawed

And of course - look what he did to PEPs, TESSAS and Pensions and the old folk who relied on dividends to supplement their pensions by 'abolishing advance corporation tax which was of course refundable in most of those circumstances.

Could you check out those statements - I don't think PEPs were affected - i.e. they could still reclaim the Tax. And Tessas were interest, not dividend based.
And the Labour government introduced pension schemes which reduced the exorbitant fees being charged by sections of the financial communities. I'm glad to see the current government is continuing in this vein.

Tradition has it that a government does not make retrospective changes to the law. But the change in the law imposed by this government came perilously close to that. But at least VCTs were not forced to change their asset based investments but they were forced to make other changes which did have a retrospective effect on the cash already held by VCTs.
Let us hope that if ever Corbyn got in he would respect that tradition : but he could abolish income tax and replace it with, say, the "Peoples' tax" and then VCTs would still be income tax free but not "Peoples Tax" free.
Be very careful what you wish for.

I really don't think that the major political parties will introduce enormous changes to the current Tax structure - that seems to be the sole domain of the Faragists.

[flyer61]

Many thanks for the replies. This is what is great about this place even if it is 'you need to have a word with yourself'!