Maya's situation
Maya is 55 and works as an NHS consultant anaesthetist alongside private practice. After pension deductions, her taxable income is approximately £265,000. She expects to continue working for at least another seven years.
Maya is already building substantial benefits in the NHS pension scheme. Her high income means that her pension annual allowance requires careful assessment. For the 2026-27 tax year, the standard annual allowance is £60,000. Tapering may apply where threshold income exceeds £200,000 and adjusted income exceeds £260,000, potentially reducing the allowance to £10,000.
Maya has used her Individual Savings Account (ISA) allowance and holds a substantial emergency fund. She does not expect to need access to the money she intends to invest and wants to build an additional pool of assets for retirement.
* Both income tests must be met for tapering to apply.
The adviser's recommendation
Maya’s adviser begins by reviewing her NHS pension position and the effect that her income may have on her annual allowance. The adviser then considers her wider financial position, existing investments, retirement objectives, need for accessible capital and ability to accept the higher risks associated with VCTs.
As Maya has already used her ISA allowance, holds a substantial emergency fund and does not expect to need the money in the short term, the adviser recommends that she invests £60,000 of her surplus income in newly issued VCT shares that qualify for income tax relief.
For shares issued during the 2026-27 tax year, income tax relief is available at 20% of the amount subscribed. Subject to the qualifying conditions and Maya having sufficient income tax liability, her £60,000 investment could therefore provide relief of £12,000, reducing her overall income tax liability from £105,453 to £93,453. Maya must hold the VCT shares for at least five years to retain the income tax relief.
The recommendation relates only to the initial £60,000 investment. If Maya wishes to make another subscription in a later tax year, her adviser would reassess its suitability, her available income tax liability and the rules in force at that time.
A note on this scenario
This hypothetical scenario is designed to help advisers think through how this type of planning might apply in practice. Whether it would suit a client will depend on their full financial circumstances, objectives, needs, capacity for loss and attitude to risk, along with the features, risks, charges and tax treatment of any investment being considered. Any recommendation would need to be made by the client’s financial adviser following a full suitability assessment.
This scenario is for illustrative purposes only and does not constitute investment, pension, tax, financial or legal advice. Actual outcomes will depend on investment performance, charges, the client’s circumstances and the tax legislation in force at the relevant time.
What it could mean in numbers
An illustration of Maya’s year-one income tax position, with and without a £60,000 VCT investment.
A £60,000 qualifying VCT investment could provide £12,000 of income tax relief, reducing Maya’s illustrated year-one income tax from £105,453 to £93,453.
How separate annual investments could add up
Each £60,000 subscription would be funded from new surplus income and considered separately in that tax year. Each investment would be held for at least five years from its own subscription date.
Illustrative assumptions
- Maya is resident in England and subject to the 2026-27 income tax rates and allowances for England, Wales and Northern Ireland.
- She has sufficient income tax liability to claim the potential VCT relief in full.
- She makes a separate £60,000 subscription for qualifying newly issued VCT shares in each of the six illustrated tax years.
- Each subscription is funded from new surplus income, remains suitable at the time it is made and qualifies for income tax relief.
- Each investment is held for at least five years and retains its original value.
- Tax rates, charges and investment performance are assumed to remain unchanged.
Why the adviser recommends this approach
The recommendation gives Maya another way to build investments for retirement when the amount she can contribute to her pension without an annual allowance charge may be restricted. Her substantial emergency fund and longer investment horizon reduce her reliance on the invested capital, while her financial position gives her the capacity to accept the higher investment and liquidity risks associated with VCTs.
The six-year figures illustrate the cumulative effect of making a separate £60,000 subscription in each tax year, using new surplus income rather than the proceeds of selling earlier VCT shares. They do not represent a recommendation or commitment to repeat the investment, because each future subscription would require a fresh suitability assessment.
Key risks and considerations
- Capital is at risk. The value of VCT shares may fall as well as rise, and Maya may receive back less than the amount invested. VCTs invest in smaller companies, which generally involve greater risk.
- VCTs should be considered as a long-term investment. Disposing of shares within five years of issue will normally result in the initial income tax relief being withdrawn and having to be repaid.
- Income tax relief is not guaranteed. It depends on Maya’s individual circumstances, including having sufficient income tax liability, the VCT maintaining its qualifying status and the legislation in force, which is subject to change and such changes may be retrospective.
- VCT shares can be difficult to sell. They may trade at a discount to the net asset value, and a sale may take time or realise less than expected. Although many VCTs operate share buyback programmes, these are not guaranteed.
- Future subscriptions require separate advice. Any later investment would need to remain suitable and would depend on Maya having sufficient income tax liability and meeting the qualifying conditions then in force.
- Pension and VCT planning are distinct. A VCT should not be treated as a direct substitute for pension saving, and the tapered annual allowance calculation requires specialist assessment.
Important Notice
For professional advisers only.
This article is for information purposes only and does not constitute investment, tax, financial or legal advice. It does not constitute an offer to buy or sell an investment or solicit any such invitation.
The information is believed to be accurate at the date of publication, but no representation or warranty, stated or implied, is made or given by any person as to its accuracy or completeness and no responsibility or liability is accepted for any such information or opinion. Tax treatment depends on individual circumstances, and tax rules may change.
Issued by Beringea LLP of Charter House, 55 Drury Lane, London, England WC2B 5SQ. Registered in England and Wales under number OC342919. Authorised and regulated by the Financial Conduct Authority under number 496358.
