Selling and reinvesting in VCTs – new service for VCT investors with certificated shares
As any VCT investor will know, VCTs are long-term investments.
However, once five years (the minimum holding period) are up, there should be no tax penalties for selling. That might leave you considering what to do next.
One option, with the potential for considerable tax benefits, is to sell an existing VCT and use the proceeds to invest in a different VCT (sometimes referred to as “recycling”).
Up to 30% income tax relief without investing new money
One of the major attractions of reinvesting into VCTs is that you could receive up to 30% income tax relief without investing any new money. Tax rules can change and benefits depend on circ*mstances.
It could also be an opportunity to update your VCT portfolio. VCT portfolios change over time, as new investments are made and old ones are sold. So, a VCT you liked five or more years ago may not be as attractive to you today. Reinvesting could allow you to adapt to this tax efficiently.
What to consider when selling VCTs and reinvesting?
Firstly, there are strict rules mainly aimed at preventing investors from churning investments for tax relief.
So, for instance, tax relief is restricted if you sell shares in a particular VCT and then reinvest in the same VCT within six months. The same applies if you sell shares in a VCT within six months of buying new shares.
Besides this, there are two important factors to consider.
1. You will usually have to sell your shares at a discount
VCT shares are usually sold at a discount to the value of the underlying investments. The discount can be sizeable if you sell on the stock market or more limited if you use a VCT’s share buyback facility, where a manager buys back shares from shareholders at a fixed discount (usually 5% to 10%). Your shares will be sold at the best price available but you won’t know this in advance. You can find out which VCTs offer buybacks and on what terms in our VCT reviews and the VCT offer documents.
2. You will likely be out of the market for some time
The sales process can take several months. After that, it may take months for your chosen new VCT to open, and even longer before shares are allotted. That means you’d miss out on any growth and dividends in the period between the sale and the allotment in the new VCT, butyou will still be entitled to any dividends paid up until the sale.
Historically, the process of selling VCTs has also been complicated, particularly for those with physical share certificates. But, if after careful consideration you decide reinvestment might be for you, Wealth Club could help make it easier. If you are unsure, please seek advice.
How Wealth Club could help
Wealth Club is trialling a new service to make it easier for investors to sell VCT shares in certificated form and invest in a new VCT. This service is provided in partnership with broker RC Brown, which will convert (“dematerialise”) your physical share certificates into an electronic format and arrange the sale.
Selling VCTs and reinvesting – how the process works
- Start your application using the Wealth Club online form below – include details of the VCT(s) you wish to sell and we will generate a pre-filled CREST transfer form for you
- You print and sign the pre-filled CREST transfer form
- You send it to RC Brown, along with your VCT share certificate(s)
- RC Brown dematerialises the shares and sells them at the next available buyback opportunity (this could be after several months)
- After the sale, you receive a contract note from RC Brown, and proceeds are paid directly to your bank account. You can use these to make your new VCT investment
Costs
RC Brown applies a £25 fee per VCT to dematerialise certificated shares, then 0.75% on the first £10,000 and 0.5% on the remainder (subject to a £25 minimum). These fees are deducted from the share proceeds.
Wealth Club does not receive any fee for this service: we offer it as a benefit to our clients so they can invest in further VCTs.
Important – please read before applying
Not all VCTs offer share buybacks: please check your shares are eligible before applying. Please also check the issue date of your shares to ensure you are over the five-year minimum holding period.
Buybacks are arranged at periodic intervals (e.g. quarterly or half-yearly) by VCT boards via their corporate broker. It could be some time before your shares are sold and the price could change.
RC Brown will sell your shares at the best execution price available – you won’t know this in advance. Buyback discounts are normally lower than those available if selling on the open market, but this is not guaranteed.
Buybacks are subject to a VCT’s available cash resources. If these are insufficient to meet demand, clients’ holdings will be sold pro-rata, with any remainder held over for the next buyback opportunity.
Please note: The process of dematerialising shares takes around four days if all requirements are met; however, this could take longer. RC Brown will arrange for shares to be sold as soon as possible but the whole process could take several months. Please read before applying.
