A Venture Capital Trust (VCT) and an Enterprise Investment Scheme (EIS) are two types of tax-efficient investment that are becoming more popular as SIPP and SSAS allowances are squeezed
Following Our Recent Article From Where You Could Request A Free Guide On VCT And EIS, There’s Lots Of Good Reasons For Exploring VCT and EIS In More Detail
The Differences Between VCT And EIS
Within the tax-efficient investment arena, VCT and EIS are two leading products for those seeking to benefit from government investment incentives.
While VCT and EIS share the ‘tax-efficient investment' status, the advantages they offer are entirely different, so it should come as no surprise they’re appropriate for separate circumstances and investment strategies.
Both structures offer income tax relief and tax free capital gains, but the similarities stop there. While these may be important drivers for you, VCT and EIS behave differently producing distinct outcomes. The following table lists their respective characteristics.
Hit the following link to find more information on the differences between VCT And EIS.
What VCT And EIS Can Bring To A Retirement Portfolio
VCT and EIS have increasingly become an important part of retirement planning in recent years.
That’s because since 2011, pensions have suffered almost yearly cuts to the amount of tax relief they provide. Recent restrictions have ranged from the tapering of the Annual Allowance to the reduction in the Lifetime Allowance to £1 million.
As a consequence, high earners have turned to other tax-efficient investments. VCT and EIS provide a complementary set of tax reliefs and the potential to realise some significant capital gains. In addition, there’s no need to lock up your money until you’re 55 and needing to take the bulk of the proceeds as taxed income.
You'll find further detail on how your retirement portfolio could be complemented with VCT And EIS here.
10 Tips To Maximise VCT And EIS
Here are 10 tips summarising the pros and cons of tax-efficient investments, including VCT and EIS.
1. Don't Leave It To The Last Minute
3. Focus On The Investment Not Tax Relief
4. Look Beyond The Tax Structure At The Underlying Investment
5. Make The Most Of Independent Research
6. Look At All The Charges
7. Match The Structure To Your Needs
8. Take Baby Steps
9. Consider Your Exit And Investment Horizons
10. Don't View This Merely As ‘End Of Tax Year' Advice
You’ll find an explanation about each of these tips on VCT And EIS here.
Intermediaries Turn To VCT And EIS In Search Of Yield
Tax planning has become the latest tool for intermediaries seeking breathing room in client portfolios, as they attempt to secure higher returns without dragging investors further up the risk spectrum.
Though advisers have long advocated the practice of efficient planning for clients, tax allowances have become more prominent in recent years. Vehicles such as VCT and EIS have enjoyed growing interest from discretionary fund managers and other intermediaries.
This has been accompanied by a darkening horizon for asset allocators, as a low-growth, low-return environment threatens investors’ ability to achieve the same performance as in previous years without taking on a greater level of risk.
Click the next link to discover why advisers are exploring the benefits of VCT And EIS.
A Word Of Warning On VCT And EIS
Be under no illusion. VCT and EIS are high risk. And they are supposed to be. The generous income tax relief is designed to encourage wealthy people to inject money they can afford to lose into young and risky businesses.
Tax relief eligibility has already been removed from some industries such as renewables, where investment is deemed not to be risky enough to deserve the relief. So it’s safe to assume all these investments are particularly risky.
While the underlying investment needs to be considered, it is not part of a standard approach to long-term portfolio construction. If you’re a passive investor, it won’t necessarily fit in with your investment philosophy.
It's not all plain sailing with tax-efficient investments, so hit the next link to find out the main risks of VCT And EIS.
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Closing 1 February 2019
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