SJP - VCT Guide

4 VCT dividend reinvestment Jenny earns £210,000 and therefore, with her savings income, pays tax at the 45% additional rate. She has fully funded her pension setting aside at least £40,000 a year. However, due to the tapered annual allowance Jenny is now restricted to just £10,000 annual pension contributions Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL Investment £30,000 £30,000 £30,000 £30,000 £30,000 £150,000 Tax relief (30%) £9,000 £9,000 £9,000 £9,000 £9,000 £45,000 Dividends - - - £1,200 £2,448 £3,648 Tax relief on reinvested dividends - - - £360 £734 £1,094 Value carried forward £30,000 £60,000 £90,000 £121,200 £153,648 Total return (including tax relief) £199,742 50 51 CASE STUDIES CASE STUDIES Payslip p.a. £210K 12/13 £40k 13/14 £40k 15/16 £40k 16/17 £10k 17/18 £10k 18/19 £10k 19/20 £10k 14/15 £40k Jenny’s annual pension contributions Looking for a tax-efficient home for Jenny’s future £30,000 p.a. £30,000 p.a. Partner recommends VCT investment Jenny invests £30,00 p.a into VCTs for the next five years She reinvests the dividends To create a tax free pot when she retires, with VCT dividends being tax free and any profits on the sale of her VCT shares being exempt from capital gains tax The diagram below illustrates how Jenny invests £30,000 into a VCT over five years, and reinvests dividends (at a rate of 4% per annum paid from the fourth year onwards). It assumes no gains or losses on the VCT or any Partner charges and that Jenny chooses not to reinvest her tax relief. VCT This case study is for demonstration purposes only. Each client’s circumstances need to be analysed on a case by case basis for appropriate client specific recommendations to be made.