As clients look to maximise tax efficiency, there’s also a growth opportunity for advisers who look beyond ISAs and pensions
Tax planning is an integral part of what most advisers offers to their clients, yet it can also help attract and retain premium clients by adding even greater value to investment portfolios.
By providing advice on specialist tax-efficient investments, advisers can help clients achieve their planning goals, such as making it easier to pass on their wealth to loved ones or creating tax efficient income streams.
Opening up a discussion about additional tax-efficient investments could reveal a great opportunity for clients and future beneficiaries. And it could open the door to longterm business benefits too. Bringing these options to your most valuable clients gives you the chance to form longer lasting relationships with them and their family.
This article considers three specialist investments: Venture Capital Trusts (VCTs), Enterprise Investment Scheme (EIS) investments and portfolios that qualify for Business Property Relief.
Tax planning for high earners
EIS and VCTs can help you to plan tax efficiently for high earners who are looking to make investments beyond their pensions and ISAs.
A VCT is a listed company that invests in a diversified portfolio of smaller unquoted companies, with attractive tax reliefs offered to compensate investors for some of the additional risk this brings.
VCT investments offer investors up to 30% upfront income tax relief, provided they hold the investment for five years. Investing into a larger listed company with multiple underlying stakes in early stage businesses means that a VCT can often pay out a dividend each year, creating a tax free income stream.
EIS investments offer the opportunity to access pioneering businesses with high growth potential. These investments are often made in a portfolio of ten to fifteen early-stage companies, and come with a package of tax reliefs such as 30% upfront income tax relief, tax-free growth on each successful exit and loss relief that can be claimed against income or gains if an investment fails. For some investors, an EIS investment can also be used to defer capital gains tax otherwise payable on the disposal of another asset, and inheritance tax relief if the investments have not been exited when the investor dies.
It’s important for clients to understand that these benefits come with risks and we recommend that advisers talk to the provider they are considering recommending, to understand how it has addressed this risk.
The value of the investments highlighted in this article, and any income from them, can fall as well as rise, and investors may not get back the full amount they invest. The shares of unquoted companies and VCTs could fall or rise in value more than shares listed on the main market of the London Stock Exchange. They may also be harder to sell.
Tax treatment depends on individual circumstances and tax rules could change in the future. Tax relief depends on portfolio companies or the VCT maintaining their qualifying status.
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