Pensions and ISAs are two of the most popular tax-efficient accounts for investing. However, for more sophisticated investors who can tolerate a higher level of risk there are a number of other opportunities to save tax. In this article we look at Venture Capital Trusts, Enterprise Investment Scheme and Seed Enterprise Investment Scheme.
You should bear in mind that all of these sophisticated tax-efficient investments are only suitable for very experienced investors with a very high tolerance for risk, and may only be suitable as medium or long-term investments. For this reason they should only form a small part of your overall portfolio.
Venture Capital Trusts (VCTs) are ‘pooled’ funds that are listed on the stock exchange. They are considered high risk as they invest in smaller, earlier stage companies – these can struggle and fail, and their shares can also be illiquid. VCTs offer a number of tax benefits, including a 30% Income Tax rebate on investments up to £200,000 per tax year (as long as you have paid the amount of tax being rebated and hold the VCT for at least five years).
Find out more about VCT rules, latest offers and exclusive discounts on our Bestinvest website.
The Enterprise Investment Scheme (EIS) encourages direct investment into small and earlier stage UK companies. These companies must be unquoted (not listed on the stock exchange), have fewer than 250 full-time employees, have gross assets of less than £15 million (£16 million after investment), and be within 7 years of their first commercial sale (or 10 years for knowledge-intensive companies).
Like VCTs, they give you tax benefits to offset the extra risk of investing in these companies. These include 30% Income Tax rebate on investments up to £1 million (as long as you have paid the amount of tax being rebated and stay invested for at least three years).
The Seed Enterprise Investment Scheme (SEIS) was launched in 2012 to encourage investment into start-ups. It is similar to VCTs and EIS but invests in smaller, riskier companies and offers a higher level of tax relief. Investors receive 50% Income Tax rebate on investments up to £100,000 (as long as you have paid the amount of tax being rebated and stay invested for at least three years).
VCTs, EIS and SEIS should all be regarded as higher risk investments. They are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon greater than five years. This document does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. If you are in any doubt as to the suitability of an investment, please contact one of our advisers. Please note we do not provide tax advice.