If I have paid 5000 in income tax in the current tax year and I reclaim it by contributing to a SIPP, can I also claim it back by buying shares in a new VCT - in effect getting double relief?
Not quite. The tax relief rules are different. But interesting.
In a nutshell:
SIPP - Contribution of 5000 (say). This is a net contribution, so a standard rate taxpayer you will not get a rebate, but will get money added to his SIPP by the Inland Revenue. 5000 net will have 1410 added. So you will pay the same amount of tax. If a higher rate taxpayer, you will also get higher rate relief of 18% on the gross contribution = 6410 @ 18% 1153 as a tax rebate.
VCT. Tax relief at 40% on the amount you contribute, the maximum tax relief being the same as the total tax you pay. eg -= if you have paid 500 in income tax, you could contribute 12500 and get a tax rebate of 5000. But if you contributed 25,000 to the VCT, you would still only get 5000 rebate becaue that is all the tax you paid. Contibute 10,000 and you would get rebate of 4000 (40%).
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Peter Taylor - FIFP, CFP
Financial Life Planning
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