Tax-Advantaged Investments Should Not Be Ignored

Business relief products, venture capital trusts (VCTs) and enterprise investment schemes (EISs) are far from new concepts. In fact, they have all been around for decades, with business relief in particular dating right back to the 1970s. Putting an exact figure to annual business relief scheme asset earnings is tricky, but EISs and VCTs managed to raise more than £2 billion combined in the last tax year. According to data published by AIC and HMRC, VCTs have since first being created attracted more than £5.6 billion, while EISs have pulled in upwards of £14 billion in Britain’s SME sector.

However, in spite of the fact that each of these structures has its own solid track record dating back at least 20 years, they don’t tend to be included in the tax-planning strategies of many financial advisers. This, despite some of the more reecent changes in pension rules and government legislation making them more interesting and appealing prospects than ever before.

The rollout of ‘DOTAS’ (disclosures of tax avoidance schemes) and ‘GAARs’ (general anti-abuse rules) has been labelled in tax-avoidance terms as the ‘kiss of death’. The tabloids have over the past few years brought the nation’s attention a fair few high-profile example of why exactly this is so. Which is one of the reasons why government-approved EISs, VCTs and business relief products are right now finding their way back under the microscope with many IFAs, when devising the most workable and effective tax-planning strategies.

Business relief, VCTs and EISs all have their own unique points of appeal when it comes to tax breaks, which make them suitable for a wide variety of investors with different interests and targets. For example, investors focusing on maximising income may find VCTs the most suitable vehicle, given the way in which they can offer tax-free dividends.

But just as is the case with all other types of investment, it’s important to remember that there’s no such thing as a free ride. While there’s much to be said for the often appealing tax incentives offered by the government on these three vehicles, the tax breaks actually exist as a means by which to counterbalance risk. Investing in unquoted, smaller and AIM-listed businesses is fundamentally riskier than many other business investment options – hence the tax incentives.

All of which adds up to an option that most certainly isn’t suitable for everyone and should be considered only under professional advisement. But at the same time, the right investor with compatible targets and the necessary attitude to risk may find these strategies to be outstanding additions to their investment portfolio.

Now more than ever, consulting with an independent financial adviser with experience in a comprehensive range of investment options is of paramount importance. Whether it’s saving for retirement, furthering business interests or maximising the value of an existing portfolio, the right information at the right time can be priceless.

For further help or to discuss any other financial matters, get in touch with the Haven IFA team today.