Let’s tick a few more (tax-efficient) boxes!

So, you have maxed out your ISA Subscription this year (using your CGT allowance via a bed & ISA transaction) and your pension Annual Allowance has also been fully utilised – what’s next?

There is good news – the UK has other tax efficient investing opportunities - if you are a high-earner and/or experienced investor. These are Enterprise Investment Schemes (EISs) and Venture Capital Trust (VCTs). There are some similarities and also some significant differences.

Both invest in small, growth-oriented UK companies. The differences are how they are structured and how the investment is held.

With an EIS – you own a share directly in a company(ies); a VCT works a little bit more like an investment fund whereby you own a share in the specified investment company. The VCT then goes on to buy shares in in unlisted companies.

Both offer an immediate 30% reduction in tax – which is attractive if you’ve had an especially profitable year, are about to receive a large bonus or have a hefty CGT bill that you didn’t expect. The added benefit of an EIS in this space would be that you can use the carry-back facility and apply it retrospectively to the previous year. Again, quite a handy panning tool.

EIS are also Inheritance Tax (IHT) Exempt after being held for two years as they qualify for Business Property Relief (BPR).

As the companies are small, early-stage and have not traded for more than seven years, these investments are only open to experienced investors who can risk 100% of their capital.

The table below sets out the basics around the plans. Should you wish to discuss making these plans part of your planning, please contact Matt or Melvin.

Source: Deepbridge – November 2023

*the maximum of £2m investment applies if the company qualifies as knowledge intensive.

The information above is for educational purposes only and does not constitute explicit or implied advice. Investments in unquoted companies are risky and you could lose 100% of any funds invested. Past performance is no guide to future growth, results may vary. Tax benefits rely on your personal circumstances and can change at any time.