END OF TAX YEAR – Investment & Insurance Blog

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End of tax year- 2022 was a very difficult year for investment markets generally for many reasons that investors will understand, driven by negative sentiment created by inflationary pressures, the aftermath of the Covid-19 pandemic and the Russian invasion of Ukraine. The UK Government’s ‘mini budget’ last September added additional, extreme worry to markets, particularly in the Gilt and Bond sectors. While the dreadful conflict in Ukraine continues, there are signs of improving sentiment – ​​which has (to this point at least) provided signs of some “green shoots of recovery”.

End of tax year- Experienced investors remain invested, buying the dips – focusing on long term outcomes, although extreme market volatility is unsettling. So, for those focused, long-term investors who are seeking to outperform deposit holdings and over the medium term maintain investment buying power and seek to add value to capital, a range of quality assets constructed within an investment program should be sought, including products that provide tax relief and investment growth opportunities, such as the plans mentioned below in this article.

With the end of the tax year fast approaching, now is a good time to ensure that you are utilizing your tax allowances. In the first instance, this means your annual ISA and pension contribution allowances. If these are fully utilized, then there are other available tax-efficient investment solutions for using surplus cash and reducing tax bills.

End of tax year – Two of these solutions are Venture Capital Trusts (VCTs) and The Enterprise Investment Scheme (EIS). Both are HMRC-endorsed and are designed to reduce tax bills, whilst stimulating the economy by investing in early-stage, growth-oriented UK companies. These products and solutions put UK investors in a particularly fortunate position and can make a compelling addition to a modern, risk-managed portfolio.

There are three good reasons why now is believed to be a good time to make a VCT or EIS investment which are linked to the recent economic downturn:

  • There is a pool of talented individuals who will have been made unemployed and some will have been waiting for a stimulus to go it alone and bring the business idea to fruition.
  • Valuations are comparatively cheap due to the aftermath of Covid-19 and the cost-of-living crisis.
  • Established companies are spending less on R&D, thus allowing an opportunity for budding entrepreneurs to fill the void this creates with their new ideas and innovations.

Venture Capital Trusts (VCTs)

A Venture Capital Trust or VCT is a publicly listed investment company run by a fund manager and quoted on the London Stock Exchange. A VCT investment is designed to encourage individuals to invest indirectly in a fund with a range of young, innovative, unquoted, and therefore higher risk trading companies, and to make money through supporting their growth.

The government is keen for experienced investors to invest in the types of companies supported by VCTs, because they create jobs and support economic growth. To help compensate for the higher level of risk involved, generous tax benefits are offered. These are summarized as follows:

  • High annual allowance – invest up to £200,000 per tax year.
  • Up to 30% tax relief – save up to £60,000 on income tax when you invest in newly issued VCT shares, provided they are held for at least five years.
  • Tax-free dividends – no Income Tax is payable on dividends from ordinary shares in VCTs.
  • Tax-free growth – no CGT on gains from disposals of ordinary shares in VCTs.
end of tax year

EIS Enterprise Investment Scheme (EIS)

The EIS Enterprise Investment Scheme (EIS) is a scheme introduced by the government in 1994 to help small companies to raise funds and grow. A private investor investing in an EIS-qualifying company can receive very substantial tax breaks. EIS-qualifying companies vary significantly, across a wide range of sectors and industries, but young and innovative businesses are a priority within the scheme. Those companies that qualify need to carry on a business with a view to making a profit and there are further restrictions on the age and size of a company. Despite these restrictions, there remains huge scope for investors. We offer investments in the scheme through EIS funds. These are higher risk investments and are only suitable for investors who understand the risks involved. Again, to compensate for the higher level of risk involved, the government offers generous tax benefits:

  • Very generous annual allowance – up to £1 million (or £2 million if investing over £1 in knowledge-intensive companies)
  • Up to 30% income tax relief – up to £300,000 per year (or £600,000 if investing in knowledge-intensive companies)
  • Tax-free growth
  • Capital gains deferral – from other investments
  • Inheritance tax relief – the investment can be passed on free of IHT provided it is held for 2 years
  • Loss relief on exit – offset any future losses against your income to save income tax

VCTs & EIS are high risk investments and providers encourage investors to take advice from a regulated professional adviser to ensure the suitability of their investment.

This is where we come in. Within our assessment, we will look at your personal tax circumstances, previous investment experience, attitude to risk and capacity for loss to ensure that the product is suitable for your needs. We are fully regulated and authorized by the FCA to provide advice on tax planning products, which means that in the event that the product was not suitable to meet an individual’s needs, the investor has recourse to the Financial Ombudsman Service (FOS) to independently assess the merits of the advice provided. We are required to seek to deliver the best outcomes for our clients and are obliged to carry professional indemnity insurance in this regard. If you were to purchase a VCT from a regulated distributor on a non-advised basis, you would not receive the same level of service or the reassurance of FOS protection.

We are confident that our fees for providing advice on these types of investment are the lowest that you will find anywhere.

  • For VCT investments, our advice fees are 1% of the amount invested, subject to a minimum of £300 in addition to provider fees which vary across fund managers and are typically 3% upfront.
  • For EIS investments, fees also vary across providers but we are confident that the costs to investors, including our advice fees will be cheaper than any other distributors, including those who offer products on a non-advised basis.

We urge investors to think long-term, and to review how asset allocations are constructed. So, please get in touch for a free, no-obligation initial discussion if any of these points resonate with you as an investor, so that we can together seek to deliver a suitable investment outcome.


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