Posted on: 10th March 2022
Many clients who contactrequire long-term tax planning as part of their advisory package, and it is a wise move to talk about the avenues open to clients as part of their estate planning strategy with an independent financial adviser.
The tax relief from areas such as an Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) are an important part of tax planning, enabling tax-free dividends and can be used to offset income tax liability, including preceding years for EIS.
EIS investments allow for a way to defer capital gains tax on other investments or to reduce the value of a client’s estate for inheritance tax purposes, which is a high point of consideration to include if applicable to the individual client.
Is EIS Exempt from Tax?
EISdoes provide 100% exemption from inheritance tax because of Business Property Relief (BPR), allowing for it to be used as an IHT mitigation strategy.
After two years, EIS investment qualifies for BPR and becomes exempt from the client’s estate for IHT purposes. BPR reduces the business value and its assets when HMRC are working out how much inheritance tax has to be paid. Any ownership or shares of a business becomes included in the estate for IHT purposes, and investors can get BPR of either 50 or 100 percent on an estate’s business assets.
Investors will get 100% BPR on a business or business interest and shares in an unlisted company so EIS can qualify for the relief. It is a pretty simple means towards reducing the client’s IHT.
In the case of trusts, assets become exempt from IHT after seven years. With BPR, assets become exempt after merely two years. Investors also retain full access and control of their investments for the remaining years of their life, unlike the case of trusts or gifting where you lose access or control.
An EIS also does not involve any complicated legal structure or tax consideration, being considered as just another. This is especially appealing to those of advanced years, suffering ill health or under powers of attorney as there is no requirement for any medical underwriting, age limit, or change of ownership associated with BPR.
However, it is the Tax relief, potential returns and IHT exemption have a powerful ally in EIS, and it is something that needs to be discussed to get a full picture of how it works for individual cases.strategy that should be the client focus of EIS, not the tax benefit. This is why it is essential to consult with a financial adviser on all of the benefits this avenue has towards your estate planning.
Contact the team at Haven IFA today for a talk on how EIS can be a great benefit to your estate planning.