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Where Taxpayers and Advisers Meet

Double-dipping pension and VCT tax reliefs

Joined:Wed Jan 13, 2021 11:47 am
Double-dipping pension and VCT tax reliefs

Postby Womble7 » Wed Jan 13, 2021 12:05 pm

Is it permissible to "double dip" pension and VCT tax reliefs ?

I have self-employed earnings of £40k (after expenses; I am a sole trader). Because I have sufficient other savings I put all my earnings into a personal pension (£32k contribution which is then grossed up to £40k by my personal pension provider). I benefit from £8k tax relief ('relief at source') within the pension but I still owe BRT @ 20% through my tax return. My tax liability is 20% of £27,500 (£40k - personal allowance of £12,500) = £5,500.

However, can I offset that £5,500 by investing in a VCT? With VCT income tax relief of 30%, investing £18,333 (of my savings) in a VCT would wipe out that £5,500 liability.

Would HMRC have a problem with this "double dipping", as I am effectively already getting tax relief on the £5,500 income tax liability within my pension?

Answers/relevant rules or legislation much appreciated....

Joined:Wed Sep 09, 2020 5:12 pm

Re: Double-dipping pension and VCT tax reliefs

Postby iwmtaxadvisor » Wed Jan 13, 2021 2:07 pm

No problem.
I did hunt around for the order of reliefs for half an hour or so, eventually coming to the conclusion that if there was a liability for tax left over there was no reason why a VCT claim could not reduce that, subject to the claim being the same or less than the tax liability.
Then I found this useful comment from HMRC which agrees:-
VCTs have large annual charges, so whether this would leave you better off compared to another investment or tax favoured investment over say 10 years is a separate and probably required computation.
- look for us on Google "iWMTaxAdvisor"

Joined:Wed Jan 13, 2021 11:47 am

Re: Double-dipping pension and VCT tax reliefs

Postby Womble7 » Wed Jan 13, 2021 3:28 pm

Thanks for the reply. That said, not sure the HMRC comment is that clear!

But, essentially, you're saying the fact that the earnings are already getting BRT relief through the pension doesn't preclude also being able to mop up the BRT liability by using another tax relief (VCT in my case)? ie. the combination will not be seen as an abuse by HMRC?

And presumably this only works with a personal pension but not with an occupational pension where contributions are gross and there is no tax to pay?

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