• HOME
• WHAT WE DO
• CONTACT
• COMMUNITY

Tax efficient investments

Expert Financial Solutions Ltd offer advice on investment management, including advice on tax efficient investment schemes EIS and VCT, advice on wealth creation and advice on wealth management.

Expert Financial Solutions Ltd are Chartered Financial Planners and independent financial advisers this means we are able to choose the best investments for you from the entire market place to seek potentially superior long term returns in the medium to long term.

If you are a high earner, or have used all your pension contribution allowances, wish to defer tax on a capital gain or have a significant income tax bill that you wish to reduce, you may be interested in these tax efficient investments.

Based in Witney, Oxford, Oxfordshire, Expert Financial Solutions Ltd has access to tax efficient investment schemes including Enterprise Investment Schemes EIS and Venture Capital Trusts VCT.

Our qualified financial planners are able to research and advise on tax efficient investments for your circumstances, requirements and objectives. Please read the brief information summary below and contact us for detailed advice.

Enterprise Investment Scheme EIS

Enterprise Investment Scheme EIS was set up to encourage private investors to invest in smaller unquoted UK companies by providing tax incentives on the investment provided that the underlying companies meet certain criteria.

An EIS will invest in shares of companies that may be listed on the Alternative Investment Market (AIM), PLUS (a trading facility run by PLUS Markets Group plc) and unquoted companies all of which may be illiquid and difficult to sell in certain market conditions.

AIM and PLUS are designed for smaller and emerging companies. Shares of companies listed on AIM, PLUS and unquoted company shares carry higher risk than those listed on the LSE Official List.

An EIS carries certain tax advantages provided that conditions set by HMRC are met: -

• EIS income tax relief may be given of 20% of the amount invested in to EIS qualifying companies, up to £500,000 per tax year, against the income tax bill for the tax year (or last tax year if you choose to carry back). For example, if you invested £100,000 in this tax year, you could receive 20% income tax relief on £50,000 for this tax year (i.e. £10,000), and an additional £50,000 against last year’s income tax bill (another £10,000), resulting in a total of £20,000 tax relief provided that you have paid at least that amount in income tax.
  
  
• A capital gain can be deferred by reinvesting realised capital gains into an EIS company. Where this relief (CGT Deferral relief) is claimed there is no upper limit to it, although the gross assets rule limits the amount of investment if the shares are to be eligible for deferral relief.
  
  
• On EIS investments where income tax relief has been given, gains made are free of CGT if the investment was issued after 5th April 2000 and has been held for more than three years. For shares issued prior to 5 April 2000 the period is five years.
  
  
• Losses are allowable on EIS investments where either income tax relief or CGT deferral relief has been claimed although a deduction is made for the 20% income tax relief.  It is also possible to set off losses made against other taxable income in the year of loss or against taxable income of the previous year.
  
• Inheritance Tax – unquoted shares in a qualifying EIS company should be inheritance tax free where the shares have been held for 2 years before death.  An EIS therefore enables you to retain access to capital whilst still being IHT efficient; unlike other IHT planning schemes that might use an investment bond wrapped within a suitable trust.

An EIS may not be suitable for all investors; generally an EIS investment is suitable for investors with secure income and assets independent of the investment into the EIS, and or where the EIS investment represents only a small part of an investor’s overall wealth portfolio. 

Venture Capital Trusts

Venture Capital Trusts VCT are quoted vehicles that aim to encourage investment in smaller unlisted UK companies and companies listed on AIM by offering investors tax incentives in return for a five year investment commitment.

First launched in 1995 and managed by private equity firms they are pooled investment vehicles listed on London Stock Exchange LSE; even so VCT can be difficult to sell due to a general lack of liquidity in small company holdings.

There are two tax reliefs available to all VCT shareholders provided that the VCT meets certain HMRC conditions: -

• Tax free income dividend payments, and

• Tax free capital gains on disposal of shares in the VCT.

Capital profits from the VCT may also be distributed as dividends.

In summary therefore the current tax advantages are: -

• Dividends from ordinary shares in the VCT are exempt from income tax.

• Income tax relief at 30% is available on investments of up to £200,000 per tax year when the shares are subscribed for. The tax saved cannot exceed the tax payable on the investor’s income..

• Capital gains made on disposal of the VCT shares are free of CGT up to the limit of £200,000 at any time provided that the VCT was an approved VCT when the shares were issued and when they were sold and that the investor is over age 18 when the shares are sold.

Note that income tax relief may be clawed back if the shares are not held for at least 5 years (the time period was three years for investments made prior to 6th April 2006). 

Please refer to the Important Information page of our website and your attention is particularly drawn to Section 11 of our Client Agreement which states: -

• Any work that we do for you may involve tax implications or necessitate the consideration of tax planning strategies. We will advise on general taxation implications within the parameters of the work that we are undertaking for you which should broadly cover the basic taxation issues that most clients are likely to encounter.
  
  
• However, you are responsible for your own tax position and any tax that may arise as a result of our advice to you. Therefore we strongly recommend that clients seek professional tax advice from a suitably qualified person if your situation is complex or where any doubt exists as to the tax treatment of transactions that we undertake for you, or advice that we give to you.

The tax position shown in this letter is based on our understanding of current English law and HM Revenue and Customs practice which may change at any time. The tax rules applicable to may change in future.

We do not guarantee that HMRC will not retract approval for these plans and this may result in tax reliefs being withdrawn and an investor having to repay tax.

Both EIS and VCT can be considered high risk investments in their own right since they comprise investment into smaller and emerging companies. Small company investment can often be illiquid and difficult to sell particularly in adverse market conditions.

Investors are advised to carefully read the relevant prospectus and product information to ensure that they have a full understanding of the operation of the scheme, the tax issues and the investment risks associated with the scheme.

January 2010