The Lemon Fool

Does investing in VCT’s reduce effective taxable income like pension contributions do?

I suspect not as the relief is flat rate but I haven’t found confirmation of this anywhere.

Does anyone know?

Thanks

Myfyr wrote:Does investing in VCT’s reduce effective taxable income like pension contributions do?
Thanks

Initial investment, no. It doesn't help with any of those tax thresholds, it just enables you to claim something back.

Longer term yes, as the dividends provide an income stream that is not merely tax-free, but is exempt from even being declared.

Exactly as UE says!

It allows you to directly reduce your effective tax rate during the year of investment. However, if you plan to push it to the extreme, you need to have a very good grasp on what that tax bill is going to be, before the tax year is remotely ended, since your purchase need to be made during that tax year.

Longer term, again as UE says, it should allow your effective tax rate to be indirectly reduced, by moving taxable income to untaxable income.

Boots wrote:Exactly as UE says!

It allows you to directly reduce your effective tax rate during the year of investment. However, if you plan to push it to the extreme, you need to have a very good grasp on what that tax bill is going to be, before the tax year is remotely ended, since your purchase need to be made during that tax year.

Longer term, again as UE says, it should allow your effective tax rate to be indirectly reduced, by moving taxable income to untaxable income.

Thanks both. Mainly looking at using VCT to manage LTA issues ensuring no further charge at age 75 on top of what I have paid this year - i have a residual uncrystallised pot remaining, can do nothing about LTA on that but the LTA charge on it will be four figures, maybe sneak into five (allowing for 3 small pots, thanks Hargreaves Lansdown) so not a disaster. Waiting until i retire to deal with that!

May just stick with ISAs in the short term. Will only use VCT to reclaim higher rate tax paid if i need to pay it. Might be able to get away with just basic rate withdrawals!