202324 round

[AndrewInDevon]

Love these youtube graphs from the Wealth club...interesting that 2324 raised the 3rd highest amount ever. Probably talks to rising tax burden resulting from fiscal drag.

https://youtu.be/h45j8RjYE9s?si=a3-l90bqJh_WrYMV

https://youtu.be/kQ7i43-avC0?si=Tt1xzoKH-YLALv5d

[Karellan]

Many thanks AndrewInDevon. Fascinating statistics. I feel that they were well worth taking in. I have been mentally trying to divide by the market cap of the VCTs for comparison.

Unsurprisingly the big old established VCT have mopped up a lot of the money. Interesting how Baronsmead is not top dog. Titan is a massive VCT and I suppose needs to raise a lot to exist.

I was interested that Puma 13 has taken more than Pembroke. I view Pembroke as an emerging big boy and Puma 13 is a well managed limited life VCT now producing evergreen VCTs that will be worth considering soon. I think one should be looking for tomorrows leaders I have Puma on that list.

Interesting how the AIM vcts have raised funds but I dont think that it is so much that they are seen as compelling value yet.

Surprised by a relatively large raise for Blackfinch. Its very new and I dont think that paid out much in dividends yet. I think that they promote themselves well to IFAs.

Proven s fundraise seems low in relation to its longevity.

Several very small and very new VCTs like Fuel , Guiness , Praetura raises. These must be very speculative on the part of the investors. These will need to make large fundraises as will some of the more established up and coming VCTs (Pums , Triple Point..) to get the gravitas of the ones at the top of this table.

Seneca surprises me with a low raise as they have been paying modest dividends.

I remember the great days of fat dividends for the established players. I have a sort of fear that these new VCTs that are allied to EIS managers will pay out a relatively thin 5% dividends with the usual capital decline. I feel wary about the future as there some do just that making it expensive for the associated risk.

Thoughts ?

[Kidman]

K, I have one thought and that is related to your points about dividends.

We are now back in the days of 'normal' interest rates. Indeed banks and building societies are paying up to 7% on regular savings accounts and cash ISAs. I suspect they are short of retail funds and feel 4% would be more in line with base rate if not a bit less. However, that means that VCTs can get some return on their univested cash to assist dividend paying and that hasn't been the case for a long while.

[AndrewInDevon]

A tax free 5% dividend is worth 8.25% to a higher rate taxpayer, I’ll happily take that if it can be consistently delivered. I wouldn’t expect juicy dividends from VCTs, unless it gets really lucky and finds a new unicorn.

I view the 30% up-front tax rebate as the compensation for the higher risk inherent in VCT (low/no capital appreciation).

[Karellan]

A tax free 5% dividend is worth 8.25% to a higher rate taxpayer, I’ll happily take that if it can be consistently delivered. I wouldn’t expect juicy dividends from VCTs, unless it gets really lucky and finds a new unicorn.

I view the 30% up-front tax rebate as the compensation for the higher risk inherent in VCT (low/no capital appreciation).

My dividend returns have been accompanied by a capital loss for a while now so the welcome steady 8.25% can be illusory. I am hopeful that when things pick up that I will have much bigger gains to compensate.

I have become a little more concerned more generally about the risk and the return that the VCT market provides. These tiny companies should have the capacity to grow a great amount. When I see some VCTs yielding thin returns I feel saddened about the state of the UK market mechanisms to raise and nurture the leading companies of tomorrow. Many of these companies are high tech and there seems little evidence that they are valued like they are in North America. Years ago many of the good returns were as a result of MBO type investment but not all. I wonder whether the underlying market were more like the Nasdaq then what would our returns be. The returns before tax relief are often small in relation to safer investments. The outlook for interest rates is to be higher. I am expecting a slight fall in the near term but in 5 years they may be higher than now. 6.5% seems weak in relation to that possibility.

[Kidman]

I have put money into stocks and shares PEPs and ISAs every year since their introduction until 2022/2023.
Last FY I put my money into a Cash ISA at 5.05% variable and this FY I have a Cash ISA at 4.70% 1yr fix.
Similar yield to VCTs, equally tax-free, no capital loss, only downside is the limit of £20k per annum.

[UncleEbenezer]

equally tax-free,

Erm ...

If you don't qualify for the 30% up-front relief then the case for VCTs looks as weak as you just told us. But ...

[AndrewInDevon]

.... only downside is the limit of £20k per annum.

Exactly....if you've fully used your £20k ISA allowance (as I have done and plan to do in future years via a 'bed and ISA' approach) and have a high-ish tax bill then VCTs are a good tax efficient option, especially with the up-front 30% tax-rebate - so a £20k investment in a VCT costs £14k after the tax rebate. Not sure why you would make a comparison to a cash ISA - apples and pears.

[Kidman]

Apologies, I was somewhat unclear, I meant that the yield is equally tax-free.

I hadn't thought about the 30% up-front tax relief. I have got in the habit of ignoring it as I am not one of those self-disciplined investors who sell after the five year holding period and re-invest. They lose perhaps 5-10% discount when selling so get say 20-25% relief/saving over five years.
If you are like me, buy and hold, then the 30% rapidly drops to 3% p.a., 2% p.a. and so on.

[Kidman]

A tax free 5% dividend is worth 8.25% to a higher rate taxpayer,

I believe that a 5% tax-free dividend is worth 7.55% to a higher rate taxpayer (saving 33.75% tax),
whereas a 5% tax-free interest payment is worth 8.33% to a higher rate taxpayer (saving 40% tax).

[AndrewInDevon]

A tax free 5% dividend is worth 8.25% to a higher rate taxpayer,

I believe that a 5% tax-free dividend is worth 7.55% to a higher rate taxpayer (saving 33.75% tax).

You’re right, my calculation was for an additional rate taxpayer ( ie 45% marginal rate of income tax and 39.35% dividend tax)