If you’re a high-net-worth individual and regularly exhaust your annual pension and ISA allowances you may wish to explore additional tax-efficient investment solutions as part of a cohesive investment plan. Enterprise investment schemes (EISs) and venture capital trusts (VCTs) can be attractive solutions for those looking to achieve tax efficiencies.
Enterprise investment schemes
EISs allow you to claim income tax relief in the year the investment is made into each EIS company. Alternatively, you can opt to carry it back to the previous tax year. There is also a capital gains tax deferral option, providing that the investment is made up to one year before making the capital gain, or three years afterwards.
For deferral relief, it’s the gain not the proceeds of sale that should be invested. In order for the deferred gain to be granted a number of criteria must be met. A deferred gain is charged at the applicable CGT rate when sold after the initial investment period. There is an option to defer the gain by reinvesting into a new EIS. If the EIS shares are held at the point of death then the deferred gain will be eliminated.
Venture capital trusts
VCTs provide a number of tax benefits, including income tax relief of 30% of the amount invested, assuming the VCT shares are held for at least five years, and tax-free dividends and capital gains.
Key considerations
VCTs and EISs offer unique tax-planning opportunities but are complex and high-risk investments, so you should ensure you fully understand them. An independent financial adviser can explain the various implications and risks.
Lumin’s Client Solutions Committee has conducted extensive due diligence to select our VCT and EIS product solutions partners. Call 03300 564 446 to speak to a Lumin expert, or book a free introductory meeting via luminwealth.co.uk/contact.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
