With further changes to Pensions legislation reducing the Pension Lifetime Allowance (LTA) from £1.5m to £1.25m and the maximum annual contribution from £50k to £40k, more and more people have to look for alternative solutions to investment and tax planning.

Given the attractive tax rules around Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS), now is the time to look again at these products from a tax planning perspective.

VCT and EIS solutions can be useful tools to complement more traditional methods of funding retirement and, as they are not pensions they are not subject to the reduced pension annual allowance.

These vehicles are not for everyone but they should certainly be considered as options in effective tax planning.

For example the VCT market is growing and maturing.

Venture Capital Trust (VCT) fundraising is up 69% so far this tax year on the previous tax year, according to figures from the Association of Investment Companies (AIC). From 6 April 2013 – 31 December 2013 the VCT sector has so far raised £152 million this tax year, compared to £89.8m during the same period in the previous tax year.

The Association of Investment Companies also report that assets under management in the VCT sector are at their highest-ever level of £2.9bn.

Some of the benefits of VCT and EIS :

Venture Capital Trust

  • 30% upfront income tax relief
  • Tax–free capital growth
  • Tax–free dividends
  • Portfolio diversification

Enterprise Investment Scheme

  • 30% upfront income tax relief
  • CGT deferral
  • Potential IHT relief in two years
  • Tax free capital growth
  • Loss relief

Too often these vehicles have been considered a bit esoteric and high risk but they really are designed to make use of Government designed schemes in a tax efficient manner. And on the basis they are fully understood may have a place in every investors tax return.

We would be delighted to provide more information on VCTs and EIS and discuss if they could be suitable for you.


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