After it was announced that the Blackfinch Spring VCT intend to pay its first-ever dividend in April 2024, investors understandably began thinking about what they would do with that dividend payment, aside from the obvious answer of spending it.
At the same time as the dividend intention was announced, we also told investors and advisers about our newly-launched Flexible Dividend Reinvestment Scheme (known as FlexiDRIS), which lets investors reinvest either some or all of the dividend amount received, which is then used to purchase further shares in the VCT.
Of course, every VCT is bound by strict rules around the amounts that an investor can invest in a single tax year, as well as the amount of tax relief they can claim on their shares. So it’s worth reminding investors and advisers of the tax situation relating to VCT dividend payments that are then reinvested in the same VCT.
To summarise: if a VCT’s dividend payments are used to purchase additional shares in the same VCT – either via FlexiDRIS or separately – then those shares would count as a new VCT share issue. This means investors can claim tax relief on the new shares, but must hold those shares for a minimum of five years to keep any tax reliefs claimed.
What about the original VCT investment – is this affected if new VCT shares are bought? No, there’s no impact on the original shares, and most importantly, there’s no ‘reset’ of the five-year holding period which began when those original shares were purchased.
Of course, any new VCT shares are still subject to the standard eligibility criteria for claiming VCT tax reliefs. Investors cannot claim more income tax relief than the amount they owe, and tax reliefs can only be claimed up to the annual VCT investment limit of £200,000.
So, the answer to the question is yes, VCT dividends that are reinvested do count as a new investment for tax purposes. For more details about Blackfinch Spring VCT, please visit https://blackfinch.investments/vct/