VCT dividends and pension taper

[deltrotter]

Hi everyone

Are VCT dividends included as income when calculating the pension taper or can they be ignored?

And if the latter are they quite literally omitted from self assessment?

TIA

Del

[SpinDoctor]

Del
This might help - the most comprehensive description that I can find.
https://techzone.abrdn.com/public/pensi ... -allowance

See the 'what can't be deducted' section.

[wanderer]

According to WealthClub you don't have to declare any dividends received from VCTs

https://www.wealthclub.co.uk/how-to-claim-vct-tax-relief/

Likewise the HMRC site says "You do not need to pay Income Tax on any dividends from a VCT (both for newly-issued shares and those previously owned)"

https://www.gov.uk/guidance/venture-capital-schemes-tax-relief-for-investors

On this basis I always assumed that such dividends were "invisible" to HMRC and so would never factor in to calculations for the taper. In my mind, this is the same as dividend income received in an ISA; that wouldn't be counted for the taper either.

The link from SpinDoctor sets out that the base calculations for both adjusted income and threshold income are start with "Total income from all sources chargeable to UK tax". I don't think there is any basis on which VCT dividends could fall into that category unless it stops being a qualifying VCT.

[deltrotter]

Thanks Wanderer and SpinDoctor

That is extremely helpful. Your reasoning is sound IMO - albeit I would want it to be that way.

Would be difficult to recommend VCTs to those who are tapered if it worsened their taper I guess!

Cheers

Del

[cprof]

Just for completeness. HMRC manual states

Individuals aged 18 or over who acquire ordinary VCT shares (whether by subscription for new shares or otherwise) are exempt from income tax on dividends in respect of shares acquired within the ‘permitted maximum’.

The current annual permitted maximum is £200K

[Artistxman]

Thanks Wanderer and SpinDoctor

That is extremely helpful. Your reasoning is sound IMO - albeit I would want it to be that way.

Would be difficult to recommend VCTs to those who are tapered if it worsened their taper I guess!

Cheers

Del

The popularity of VCTs is partly due to the whole pension taper rules as you get some tax advantage upfront and the dividends are tax free! The main difference is the risk involved in VCTs vs pension which can be invested in lower risk funds, bonds etc. So, I don't see any problem recommending VCTs as long as the risk is understood in my humble opinion.