passing VCTs on the the next generation

[njdl]

I have about 20 VCTs in about 5k lots; all bought more than 5 years ago. My life expectancy is not great and I am thinking about how to manage the transfer to the next generation. As things stand, on my death my wife will inherit. That is already a bit of a problem because they are in my name and I suppose by the letter of the law she should transfer them to her. But the divis which are all that interest us at the moment are paid into our joint account so actually it makes little difference to her (in this respect) whether I am alive or dead. On her death they will be inherited by our two children who will then have the problem of working out what to do with them. So, I am thinking of selling the lot; I am not interested in buying more as I pay almost no tax. I can manage without the divis by selling shares from my ISA. I would then transfer the money as PETs to my children who could use it to buy VCTs and benefit from the tax advantage (or use it as a deposit for a Lamborghini – albeit a small one). Anyone any general observations – any booby traps or hazards that I should take into account?

[scotia]

I have about 20 VCTs in about 5k lots; all bought more than 5 years ago. My life expectancy is not great and I am thinking about how to manage the transfer to the next generation.

A few years ago my wife and myself (in our mid seventies) decided to wind down our VCTs - buying no new ones, and selling the others at the end of a 5-year hold. Our reason was the desire to simplify all matters relating to our estates. This is proceeding reasonably well - although with some VCTs there can be several months waiting for a buy-back. Our other investments are in mainstream OEICS, ETFs and ITS , sheltered in ISAs and SIPPs.
On a slightly different tack - yes we have been using PETS to pass on cash to our children - but remember that you have to survive 7 years
to obtain the estate tax advantage. We have just reached the magic 7 from our earliest PETS.

[SpinDoctor]

njdl, sensible to think about this now and to tidy things up for the next generation, 'ante-mortem'.

I think you should consider gifting the VCT shares to your children, simply by completing and sending a stock transfer form in each case.

Those gifts would give your children a modest tax free income, and the freedom to determine if and when to cash them in and perhaps reinvest for the income tax relief.

The PET would be valued at the share mid price on the day of transfer.

Food for thought...

[Kidman]

I have also been working on inheritance issues for some time, my estate being much more complicated as I am in various limited liability investment partnerships. Final clearance of probate accounts will have to await the run down of all those LLPs, and then calculation of the 10% I am giving to charity to reduce my IHT rate.

Gifts up to £3000 do not become PETs and there is one other less often used transfer method. One can pass on monies from income that are in excess of all one's spending without creating a PET. Unfortunately this is a complex area as the executors need to show that the money was indeed in excess so the deceased needed to keep some sort of rudimentary accounts. I had hoped that we could just file a form each year with the figures.

For further reading see the HMRC manual:-
"IHTM14231 - Lifetime transfers: normal expenditure out of income: introduction

The exemption under IHTA84/S21 applies where the taxpayer can show that a gift (transfer of value):

formed part of the transferor’s normal expenditure (IHTM14241),
was made out of income (IHTM14250), and
left the transferor with enough income for them to maintain their normal standard of living (IHTM14251)."

[Kidman]

I've had another thought on the question of passing VC investments on in a deceased's estate.

I believe that is you have invested in EIS or SEIS shares and have held them for two years prior to your decease, then they attract BPR (Business Property Relief) and they are not subject to IHT.

Of course if the (S)EIS company is bought out, folds etc prior to one's decease then the estate will no longer have a BPR relievable asset.

[127tolmers]

https://octopusinvestments.com/resource ... eis-shares

I have found this Octopus guide to be very helpful and in some cases quite surprising.

[cprof]

I have found this thread useful, thank you contribnutors. I am interested in how the rule, that acquisitions of VCT's over £200K per annum are no longer eligible for payment of dividends tax free, is applied in various scenarios when shares are passed on.
I could not find anything specific in HMRC tax manual, but these two pages from Unicorn AIM website seem to answer the questions (provided thay are correct!)
https://www.unicornaimvct.co.uk/files/d ... pousepdf/8
https://www.unicornaimvct.co.uk/files/d ... pousepdf/9
My interpretation of this is that if you transfer VCT's to your spouse whilst you are alive , all dividends will be free of dividend tax. On the otherhand if you bequeath the VCT's to your spouse (or any other recipient) any shares over £200K per recipient will be subject to tax on dividends. This could lead to some bizarre tax planning activities.
Have i understood this correctly?

[james188]

I think that this is correct. The added twist is that if a beneficiary has invested in VCTs in the relevant tax year that the bequest is made, then that will reduce the £200,000 allowance (or whatever the annual allowance then is) commensurately. I factored this issue in when making VCT bequests in my will.

[ali1947fish]

My case is even more complicated as i have no children and born abroad- any idea where i can explore this to decide on my options