Lifecycle of a VCT / Octopus AIM VCT

[hertschris]

Hi folks,

Long time lurker...hoping for some help with a Foolish question.

- I invested about £100K across Octopus AIM VCT and VCT2 in 2017, thinking this was a wiser move than my own direct individual AIM company investments I was enjoying at the time.

- In practice, today the portfolio value is circa £75K. Noting there's been tax relief along the way (I reinvest the dividends automatically), this has not been a strong investment.

- I (total VCT newbie) had assumed I could just sell them online using the shiny Octopus portal, because it's 2025 and all that... How foolish.... I've subsequently realised I need to send of physical bits of paper I no longer have to someone like RC Brown (WealthClub suggestion) to divest them. This involves getting copies of the paperwork I shredded years ago (at cost), and indeed also giving HMRC back any tax relief claimed on revinvested dividends within the past 5 years.

- All of which got me wondering.... do VCTs ever just get wound down when they're not performing particularly well? (and I'd argue the outlook for AIM is not great in the medium term). It looks like they've just issued new share capital (god knows to who), so presumably not in this case, but I thought I'd ask as they're 16 years into the VCT cycle on this one I think.

- Any other thoughts welcomed on the Octopus AIM VCTs. Maybe you're super bullish on them and seeing something I'm not..

Thanks,

Chris

[scotia]

Hi folks,

Long time lurker...hoping for some help with a Foolish question.

- I invested about £100K across Octopus AIM VCT and VCT2 in 2017, thinking this was a wiser move than my own direct individual AIM company investments I was enjoying at the time.

- In practice, today the portfolio value is circa £75K. Noting there's been tax relief along the way (I reinvest the dividends automatically), this has not been a strong investment.

- I (total VCT newbie) had assumed I could just sell them online using the shiny Octopus portal, because it's 2025 and all that... How foolish.... I've subsequently realised I need to send of physical bits of paper I no longer have to someone like RC Brown (WealthClub suggestion) to divest them. This involves getting copies of the paperwork I shredded years ago (at cost), and indeed also giving HMRC back any tax relief claimed on revinvested dividends within the past 5 years.

- All of which got me wondering.... do VCTs ever just get wound down when they're not performing particularly well? (and I'd argue the outlook for AIM is not great in the medium term). It looks like they've just issued new share capital (god knows to who), so presumably not in this case, but I thought I'd ask as they're 16 years into the VCT cycle on this one I think.

- Any other thoughts welcomed on the Octopus AIM VCTs. Maybe you're super bullish on them and seeing something I'm not..

Thanks,

Chris

Some years back, when you purchased a VCT, you received a Share Certificate, and each dividend reinvestment would generate a new Share Certificate. More recently you could transfer these original share certificates to a broker - e.g. Hargreaves Lansdown (which I use) etc. When these are so lodged, you can request that these be sold. Some VCTs are reasonably liquid (usually AIM ones are) and can be sold immediately. Others may be less liquid, and you may need to wait for a buy-back date - which could be some months (in my experience). However you must remember that the tax relief you have received is only valid if you have held the shares for more than 5 years. And this applies to the time that each of the purchases is made - including the dividend reinvestments. So if you have made any dividend reinvestments less than 5 years ago, these will need to be held for 5 years to hold onto the tax relief. Fortunately, all the investments and re-investments which have been held for more than 5 years are not affected. These are my understandings, but you would do well to check them on the Octopus AIM site
https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-aim-vcts/shareholder-information/

[londoninvestor]

I've subsequently realised I need to send of physical bits of paper I no longer have to someone like RC Brown (WealthClub suggestion) to divest them. This involves getting copies of the paperwork I shredded years ago (at cost), and indeed also giving HMRC back any tax relief claimed on revinvested dividends within the past 5 years.

I hadn't heard of RC Brown before, but looking at their website I suspect they'll be more expensive than the £5.95 you'd pay through x-o.co.uk.

Alternatively, Octopus (unlike most VCT managers) will buy the shares directly back from you, though again that seems to be a paper-based process.

But yes, either way you'll have the extra cost of getting replacement share certificates.

[londoninvestor]

- All of which got me wondering.... do VCTs ever just get wound down when they're not performing particularly well?

Yes they do - some examples are on this thread.

[hertschris]

Very helpful, thanks all.

And yes, looks like X-O will be a better bet indeed.
RC Brown was recommended by WealthClub (they state they're not making money from it as a referral, just trying to be helpful). However, looking at the fees, I see:

"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."
(that's from a Wealthclub page, I don't have posting permissions to link to it yet)

I've started to request the myriad of duplicate paperwork from Computershare, albeit am pending a quote for the cost to re-issue. I shredded all the pre-2020 paperwork (including share certificates) having assumed I wouldn't need it as it's all shown online and I'd reported to HMRC already, etc.

[Kidman]

Chris,

do you need to sell?

If you aren't desperate for the cash why not just switxh off dividend reinvestment?

That way you would get some tax-free cash from the dividends, your recent reinvestments will get through their five-year holding period, and if you are really lucky, your VCT may be merged and you will get a new share certificate without cost! The latter benefit is probably unlikely but does happen.

Once the reinvestments are through their five years you could send what certificates you do have to X-O to sell, holding the rest for dividends.

[hertschris]

Chris,

do you need to sell?

If you aren't desperate for the cash why not just switch off dividend reinvestment?

Really interesting point - and good food for thought. Will have a look at the maths on it. Just feels like it's going to tank further in coming years, I suppose. I'm quite bearish on AIM generally (sadly, I love the concept).

[scrumpyjack]

Sadly the cynic in me tends to the view that these things are designed to maximise fees for the managers in a way that the goose (the investor) doesn't realise how many feathers are being plucked! So it is not in their interests to wind it up.

To get IHT relief you have to have invested directly in the AIM company, hence the need for share certificates etc rather than just an investment in a fund.

The scandal of Octopus fees on this made the headlines a while back!
https://www.thetimes.com/business-money ... -88kncjttf

There are some very solid established companies on the AIM and I think it is better just to buy some directly rather than be scalped by managers, if you want to get some IHT relief!

(Of course the halving of IHT relief and the fees scandal will have resulted in selling pressure on the underlying AIM shares thus aggravating their poor performance, (temporarily?))

[hertschris]

There are some very solid established companies on the AIM and I think it is better just to buy some directly rather than be scalped by managers, if you want to get some IHT relief!

In my earlier years of investment, I used to spend a lot of time on AIM - usually chasing some racy casino level of risk mining opportunity, Figured the VCT was a better bet to the quality assets as you rightly point out, whilst saving me time of doing the analysis directly. In practice...hasn't quite worked out that way. The reliefs have made it just about work, but as with most things, banging it in a tracker would have been better - but such is the joy of diversification, they won't all pay off.

[Kidman]

Another thought;

pay the indemnity charge for a new certificate for the original main holding, transfer that to X-O and sell.
Stop all dividend re-investment from the previous dividend reinvestment holdings.

Keep all the dividend re-investments until the last five year period has passed and then review the situation.
A key criterion will be the cost of a certificate indemnity versus the value of each re-investment holding.
At least you could then sell all those re-investment shares for which you do have certificates and then leave the others for a (small) income stream.

[hertschris]

Another thought;

pay the indemnity charge for a new certificate for the original main holding, transfer that to X-O and sell.
Stop all dividend re-investment from the previous dividend reinvestment holdings.

Keep all the dividend re-investments until the last five year period has passed and then review the situation.
A key criterion will be the cost of a certificate indemnity versus the value of each re-investment holding.
At least you could then sell all those re-investment shares for which you do have certificates and then leave the others for a (small) income stream.

Also a good thought. I'd been thinking in pretty binary terms, hadn't considered this. Thank you.

[Kidman]

Two updates;
firstly X-O only have a few months left as they are transferring their execution only accounts to ii (Aberdeen) who have monthly fees.
That means it is probably too late to open an account with X-O (Jarvis).

Some years ago the EU set a target date for dematerialisation, turning all certificated holdings into elecronic holdings but still directly in one's own name, i.e. not through a platform nominee. I have no idea how the UK is progressing with this or whether it has been dropped due to Brexit, but if it does happen then everyone with lost certificates could benefit.

[londoninvestor]

That means it is probably too late to open an account with X-O (Jarvis).

Sadly so - they have already closed their doors to new customers.

[hertschris]

Some years ago the EU set a target date for dematerialisation, turning all certificated holdings into elecronic holdings but still directly in one's own name, i.e. not through a platform nominee. I have no idea how the UK is progressing with this or whether it has been dropped due to Brexit, but if it does happen then everyone with lost certificates could benefit.

hehe, a Brexit boon. Had a quick read before losing the will to live with it... Was a Taskforce setup under the BoJo Conservative government, which has reported some findings, but still seems to be being debated back and forth by interested groups as far as I can tell.

e.g. https://www.uksa.org.uk/sites/default/f ... -12-04.pdf

Thanks for the tip though - gives some hope this might be easier in the future. Just not clear if that might be 2035,