CASE STUDY – VCTs

Let us look at our work by outlining a case study for an Investment Banker client. His stated objective was to reduce his tax bill in 2004/05 and to report on the merits of using Film Schemes to recover tax on earlier years.

1. In 2004/05 we had recommended a VCT investment of £100,000. This investment was made in November 2004 when income tax relief was at 40% and by January 2005 the £40,000 tax rebate was in his hands.
   
   
2. The £40,000 tax rebate was used as the cash investment into a Sale and Leaseback Film scheme, the entry price was 20% and with a full recourse loan covering the remaining 80%, he would obtain a trading loss of £200,000. Tax relief at 40% on this amounted to £80,000.
   
   
3. Sideways relief used to send this loss back to the earliest year possible, in this case 2001/02. In that year his basic salary had been £150,000 and he had a bonus of £100,000. A stand-alone claim was made as this was a tax year already settled, and by June 2005 the £80,000 tax rebate was in his hands.
   
   
4. In 2005/06 the £80,000 tax rebate was used to purchase another Film, with a trading loss of £400,000. This will cover a high percentage of his bonus and will lead to a tax saving of £160,000.
   
   
5. 2005/06 was the last year for 40% tax relief on VCT’s, so placed the maximum possible (£200,000) into a range of VCT’s. This led to a tax rebate of £80,000.
   
   
6. Post “A” Day we are suggesting that future rebates go into his pension. We think the message is clear, money makes money for those who take professional advice.
   
   
7. In January 2006 this client received a tax-free dividend from the VCT of £3,500. Hopefully the first of many to come.
   

In the case above we have started with just one investment funded by the investor and then we have used the tax rebate generated over and over again.