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XIRR on VCT Disposals
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- Lemon Quarter
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XIRR on VCT Disposals
I have decided to dispose of a number of time-served VCTs, and as I sell them, I have been computing the XIRR returns.
The first two this year have been Northern 3 and Maven 4.
Northern 3 was originally purchased (new) in April 2005, and was subject to an enhanced buy-back in march 2010. Taking into account these two tax rebates, the XIRR is 13.9%. If I ignore the tax rebates, the XIRR is 4.9%
Maven 4 was originally purchased (new) in March 2012. Taking into account the initial tax rebate, the XIRR is 10.7%, and without the tax rebate is 3.98%.
I have another batch of VCTs which I'll be selling in the coming months, and I suspect that they will follow the same pattern - i.e. the initial tax rebate is a major component of the returns. With the new VCT rules, I expect the returns will be lower, so I'll just be balancing new investments with sales, and I'll be arranging the sales to occur promptly after the 5 year period. Unfortunately VCT managers seem to be consolidating the number of VCTs they are offering, so introducing complications with the 6 month rule.
The first two this year have been Northern 3 and Maven 4.
Northern 3 was originally purchased (new) in April 2005, and was subject to an enhanced buy-back in march 2010. Taking into account these two tax rebates, the XIRR is 13.9%. If I ignore the tax rebates, the XIRR is 4.9%
Maven 4 was originally purchased (new) in March 2012. Taking into account the initial tax rebate, the XIRR is 10.7%, and without the tax rebate is 3.98%.
I have another batch of VCTs which I'll be selling in the coming months, and I suspect that they will follow the same pattern - i.e. the initial tax rebate is a major component of the returns. With the new VCT rules, I expect the returns will be lower, so I'll just be balancing new investments with sales, and I'll be arranging the sales to occur promptly after the 5 year period. Unfortunately VCT managers seem to be consolidating the number of VCTs they are offering, so introducing complications with the 6 month rule.
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- Lemon Slice
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Re: XIRR on VCT Disposals
One can't get upfront tax relief when buying new shares in a VCT if one sells shares in the same VCT up to six months before or after the purchase.Spet0789 wrote:Can you please explain to me the six month rule?
That is my understanding!
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- Lemon Quarter
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Re: XIRR on VCT Disposals
Kidman wrote:One can't get upfront tax relief when buying new shares in a VCT if one sells shares in the same VCT up to six months before or after the purchase.Spet0789 wrote:Can you please explain to me the six month rule?
That is my understanding!
That's also my understanding. And my understanding is that if a VCT manager has two different VCTs (with different boards who can theoretically change the manager), then you could sell one without the 6 month rule affecting the other. However if these two VCTs are consolidated into one (e.g. Amati), then a sale of the (one) Amati VCT will preclude any purchase of the (one) Amati VCT within 6 months - otherwise there is no tax rebate.
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- Lemon Slice
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Re: XIRR on VCT Disposals
Many thanks for posting this, Scotia. I must assume that you have done the maths correctly cos it’s way beyond me. But can you explain how you treated dividends – some of which have been substantial for both NTN and MAV4. Did you reinvest them or …?
You say :
Now the true return of 4.9 for NTN and just under 4 for MAV4 – during a time when VCTs were generally doing well – as were equities in general – is not exceptional. Moving forward, under the new rules and with a wall of money waiting to be invested, can you see those returns continuing? I can’t for most VCTs, and so am limiting my investments here to a couple of DRIS schemes (Albion and some NVT).
I see richer pickings elsewhere at the moment and am on about 10% per annum total return.
You say :
Northern 3 was originally purchased (new) in April 2005, and was subject to an enhanced buy-back in March 2010. Taking into account these two tax rebates, the XIRR is 13.9%. If I ignore the tax rebates, the XIRR is 4.9%
Maven 4 was originally purchased (new) in March 2012. Taking into account the initial tax rebate, the XIRR is 10.7%, and without the tax rebate is 3.98%.
Now the true return of 4.9 for NTN and just under 4 for MAV4 – during a time when VCTs were generally doing well – as were equities in general – is not exceptional. Moving forward, under the new rules and with a wall of money waiting to be invested, can you see those returns continuing? I can’t for most VCTs, and so am limiting my investments here to a couple of DRIS schemes (Albion and some NVT).
I see richer pickings elsewhere at the moment and am on about 10% per annum total return.
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- Lemon Quarter
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Re: XIRR on VCT Disposals
BusyBumbleBee wrote:I must assume that you have done the maths correctly cos it’s way beyond me. But can you explain how you treated dividends – some of which have been substantial for both NTN and MAV4. Did you reinvest them or …?
All dividends were taken as cash, and not reinvested.
The maths is simple if you use an Excel Spreadsheet. You need to create a list of two columns, one with the date and the other for the cash - dividends, tax rebates, and final disposal amount are positive, while the purchase cost is negative. Then you employ the Excel XIRR function - E.G. "=XIRR(C1:C19,B1:B19,0.1)" where in this example there are 19 rows with C as the Cash column, B as the Date column, and 0.1 as a trial solution - i.e. the XIRR computation works iteratively, starting with the trial solution and homing in to the correct solution. The result is a fraction which I display in a cell formatted as a percentage.
BusyBumbleBee wrote:Now the true return of 4.9 for NTN and just under 4 for MAV4 – during a time when VCTs were generally doing well – as were equities in general – is not exceptional. Moving forward, under the new rules and with a wall of money waiting to be invested, can you see those returns continuing? I can’t for most VCTs, and so am limiting my investments here to a couple of DRIS schemes (Albion and some NVT).
Agreed - I think the best days of VCTS are past, but they have a home as a small part (<10%) of my portfolio. No fireworks, but hopefully a modest stable return.
BusyBumbleBee wrote:I see richer pickings elsewhere at the moment and am on about 10% per annum total return.
Well done! the past 12 months has seen a stand-still (after a drop at the end of the year) in my portfolio
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- Lemon Quarter
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Re: XIRR on VCT Disposals
I decided to try and factor inflation into my calculations, so I used the UK Government RPI Index. Each cash entry was divided by the RPI index for the month in which it was entered, and multiplied by the RPI index of the first entry (the initial purchase). I now carried out an XIRR calculation on these indexed values. I also tidied up the date at which the tax rebate was received, making it consistently the 6th April of the tax year following the purchase, and I included two places after the decimal point in the results. My results are
Northern 3 XIRR: Including Tax Rebates = 13.85%, and RPI Indexed = 10.63%
Northern 3 XIRR: No Tax Rebates = 4.92%, and RPI Indexed = 1.95%
Maven 4 XIRR: Including Tax Rebates = 10.77%, and RPI Indexed = 8.14%
Maven 4 XIRR: No Tax Rebates = 3.98%, and RPI Indexed = 1.54%
Northern 3 XIRR: Including Tax Rebates = 13.85%, and RPI Indexed = 10.63%
Northern 3 XIRR: No Tax Rebates = 4.92%, and RPI Indexed = 1.95%
Maven 4 XIRR: Including Tax Rebates = 10.77%, and RPI Indexed = 8.14%
Maven 4 XIRR: No Tax Rebates = 3.98%, and RPI Indexed = 1.54%
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- Lemon Quarter
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Re: XIRR on VCT Disposals
I purchased all 4 Mobeus VCTs in February 2014, so this batch have now (just) reached the end of the 5 year Tax Rebate hold, and I am currently selling them. There are probably two numbers which best give a feel for the performance - namely the XIRR, and the Gain (Tax Rebate + Dividends + Sold Price - Cost) divided by the Net Cost (Cost - Tax Rebate). I have treated all of the Dividends as taken in Cash. The Figures (XIRR, Gain/NetCost) are:-
Mobeus VCT 21.64%, 89.17%
Mobeus 2 VCT 17.74%, 84.24%
Mobeus 4 VCT 17.37%, 75.71%
The Income & Growth VCT 16.25%, 68.27%
Taking RPI into consideration for Mobeus VCT - by dividing the money (Cost, Rebate, Dividends, Sale) at each date by the RPI, the figures decrease to 18.75% and 73.84%.
Now removing the Tax Rebate from the calculations for Mobeus VCT (but not taking RPI into account), I get 8.68% and 32.42%. This confirms my belief that the Tax Break is a significant contributor, even to a successful VCT like Mobeus VCT. And a policy of recycling seems to make considerable sense.
Both Mobeus 4 VCT and the Income & Growth VCT ran generous DRIS schemes (now ceased) which I have not included in my calculations, so although they appear to have provided the poorer returns, this may have been ameliorated by the DRIS schemes.
Mobeus VCT 21.64%, 89.17%
Mobeus 2 VCT 17.74%, 84.24%
Mobeus 4 VCT 17.37%, 75.71%
The Income & Growth VCT 16.25%, 68.27%
Taking RPI into consideration for Mobeus VCT - by dividing the money (Cost, Rebate, Dividends, Sale) at each date by the RPI, the figures decrease to 18.75% and 73.84%.
Now removing the Tax Rebate from the calculations for Mobeus VCT (but not taking RPI into account), I get 8.68% and 32.42%. This confirms my belief that the Tax Break is a significant contributor, even to a successful VCT like Mobeus VCT. And a policy of recycling seems to make considerable sense.
Both Mobeus 4 VCT and the Income & Growth VCT ran generous DRIS schemes (now ceased) which I have not included in my calculations, so although they appear to have provided the poorer returns, this may have been ameliorated by the DRIS schemes.
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Re: XIRR on VCT Disposals
Hi Scotia, thanks for your posts on this topic. I am looking to taker a similar approach to you - recycling my vct portfolio by selling those I have held for at least 5 years and then buying again when new issues occur with the associated tax relief . However, I have never sold (or bought) VCTs in the open market and am unsure how to do this most effectively ? With the benefit of your experience could you let me know what you think the best approach is for selling and which third party you use, and any tips or things to look out for or avoid doing.
Many Thanks ,
Tim
Many Thanks ,
Tim
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- Lemon Quarter
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Re: XIRR on VCT Disposals
Tim - I have purchased most of my VCTs and held them as certificates. When the five years were up, I normally sent them to Charles Stanley Direct, and they were lodged in my Nominee account with no charge. I then sold them online (cost £11.5). This usually worked without any problems, but on my last sale I required to place a telephone order (£25), since the online order was not executed. Earlier this year I sent off a further two certificates, but was informed that their terms had now changed and that they would charge £50 per VCT to lodge them in my nominee account, albeit this charge would be waived if I held more than £50000 in that account. Since my Charles Stanley account is historical, and little used (apart from selling VCTs), it contained less than this amount, so I requested they return the certificates (as they had promised to do). My major accounts are with Hargreaves Lansdown (HL), so I now use them to dispose of my VCTs. They are lodged in my non-ISA account without charge, and if I sell them with the proceeds going into my ISA account, then there is no selling charge.
As to the mechanism - on the HL site I print off a Fund and Share Transfer form (which has my address details) and I post this with the share certificates to HL. On receipt, HL send me a Crest Transfer Form which I sign, and post it back to them. Thereafter the transfer normally completes in a few days. You may wish to use signed-for mail, although I don't.
As to the mechanism - on the HL site I print off a Fund and Share Transfer form (which has my address details) and I post this with the share certificates to HL. On receipt, HL send me a Crest Transfer Form which I sign, and post it back to them. Thereafter the transfer normally completes in a few days. You may wish to use signed-for mail, although I don't.
Re: XIRR on VCT Disposals
Hi Scotia - thanks for the interesting detail - do HL charge for this service? If one is signed up to a DRIS/DRIP are future share purchases handled seamlessly by HL?
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Re: XIRR on VCT Disposals
Thanks Scotia that's really helpful .
In terms of the selling price do you just set a limit price at somewhere between 5-10% of latest NAV or something more sophisticated ? does the quantity effect your pricing decision ? also do you discuss anything with the VCT parent company before selling or just go straight to HL .
Many Thanks,
Tim
In terms of the selling price do you just set a limit price at somewhere between 5-10% of latest NAV or something more sophisticated ? does the quantity effect your pricing decision ? also do you discuss anything with the VCT parent company before selling or just go straight to HL .
Many Thanks,
Tim
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- The full Lemon
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Re: XIRR on VCT Disposals
I too sell through HL (other platforms are available and probably offer a broadly similar service). Going straight to them seems to work fine for mainstream VCTs. If they can't give you the quoted price then you might want to dig further, but I think that's rare these days, unless perhaps you're trying to sell a troubled VCT, or maybe something very specialist.
Of course that could all change, most likely when the market as a whole goes pear-shaped, but also when an individual VCT runs into trouble.
I recently transferred all my certified VCT holdings to the HL fund and share account[1], for convenience and to make them easy to sell as and when I need to. That means I'm no longer visible on the shareholder registers, so I'll have some hoops to jump through if, for example, I want to attend a shareholder event or vote on resolutions. But HL have always enabled me to exercise shareholder rights when I've asked them in the past.
[1] Conveniently I happened to be making a long journey that permitted me to change trains at Bristol, so I delivered a bundle of certificates in person (and took advantage of the opportunity of a street food stall to get a nicer spot of lunch than I could have got at the station).
Of course that could all change, most likely when the market as a whole goes pear-shaped, but also when an individual VCT runs into trouble.
I recently transferred all my certified VCT holdings to the HL fund and share account[1], for convenience and to make them easy to sell as and when I need to. That means I'm no longer visible on the shareholder registers, so I'll have some hoops to jump through if, for example, I want to attend a shareholder event or vote on resolutions. But HL have always enabled me to exercise shareholder rights when I've asked them in the past.
[1] Conveniently I happened to be making a long journey that permitted me to change trains at Bristol, so I delivered a bundle of certificates in person (and took advantage of the opportunity of a street food stall to get a nicer spot of lunch than I could have got at the station).
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- Lemon Quarter
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Re: XIRR on VCT Disposals
Mark wrote:Hi Scotia - thanks for the interesting detail - do HL charge for this service? If one is signed up to a DRIS/DRIP are future share purchases handled seamlessly by HL?
I have SIPP and ISA accounts with HL, and by default I have a non-ISA fund and share account which I previously didn't use, and which I now use to hold my transferred VCT certificates - and there has been no charge for this service. If you sell the VCT within this account, there will be the usual selling charge, but if you transfer the proceeds to your ISA or SIPP, there is no selling charge. As UncleEbeneezer has stated the usual sale price is the lower of the quoted bid/offer spread - and this has always been the case when I have sold VCT shares worth thousands (but not tens of thousands or greater) of pounds. I believe that it is normal practice when a Certificated Share is lodged in a nominee account that any associated DRIS or DRIP will cease - and the dividends will be paid into the account. That certainly was the case with Charles Stanley Direct (when it was Fastrade) but I have no experience of this with HL.
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Re: XIRR on VCT Disposals
thanks again Scotia and Uncle E .
when selling the VCT on HL - do you do that online or over the phone ? have you every experienced a situation where they are unable to sell at lower of bid/offer spread .... If the VCT parent is not doing buybacks at that time I'm guessing that lack of any demand could be an issue ?
when selling the VCT on HL - do you do that online or over the phone ? have you every experienced a situation where they are unable to sell at lower of bid/offer spread .... If the VCT parent is not doing buybacks at that time I'm guessing that lack of any demand could be an issue ?
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Re: XIRR on VCT Disposals
scotia wrote:As to the mechanism - on the HL site I print off a Fund and Share Transfer form (which has my address details) and I post this with the share certificates to HL. On receipt, HL send me a Crest Transfer Form which I sign, and post it back to them. Thereafter the transfer normally completes in a few days. You may wish to use signed-for mail, although I don't.
I too use HL with one minor difference.
I print off the Crest transfer form from their website and include it with the certificates when transferring them to my HL Fund and Share Account.
That saves a couple of days before I can trigger the "Bed and ISA" service to sell the VCT shares and transfer the resultant funds to my ISA.
https://www.hl.co.uk/__data/assets/pdf_file/0008/9150587/Crest-Transfer-Form.pdf
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- Lemon Quarter
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Re: XIRR on VCT Disposals
timrichards1 wrote:thanks again Scotia and Uncle E .
when selling the VCT on HL - do you do that online or over the phone ? have you every experienced a situation where they are unable to sell at lower of bid/offer spread .... If the VCT parent is not doing buybacks at that time I'm guessing that lack of any demand could be an issue ?
With HL I click the box which indicates that I wish to Bed and Isa my VCT - and it is normally carried out without any further intervention, with the selling price being the lower of the bid/offer spread.
In my final VCT sale with Charles Stanley Direct (Maven 5), I was only offered an online Limit order, and I repeated it over many days at the bottom of the bid/offer price without success. I was then phoned by CS who told me about the illiquid nature of VCTs (although I had no previous problems with sales) and advised me to place a telephone order. I did, and the sale went through the same day at my limit price (and with a telephone order charge).
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Re: XIRR on VCT Disposals
Kidman wrote:I too use HL with one minor difference.
I print off the Crest transfer form from their website and include it with the certificates when transferring them to my HL Fund and Share Account.
That saves a couple of days before I can trigger the "Bed and ISA" service to sell the VCT shares and transfer the resultant funds to my ISA.
I wondered about this - and even printed off the Crest Transfer form, but since I was in no great hurry I just carried out the 2-stage procedure as I had previously done with Charles Stanley.
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- Lemon Quarter
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Re: XIRR on VCT Disposals
Today I sold a Baronsmead Venture Trust VCT (previously Baronsmead VCT 2) which I purchased in March 2014 - i.e. just past the 5 year date. The (Sold Price + Dividends - Net Cost)/(Net Cost) expressed as a percentage was 62.38%. The Net Cost is the price I paid less the 30% tax relief. Not bad for 5 years. But If I ignore the initial tax relief and replace the Net Cost in the above equation with the Gross Cost (no tax relief), I get 13.66% - which is better than a Cash ISA, but is not impressive.
Hence my reason for re-cycling after 5 years.
Hence my reason for re-cycling after 5 years.
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