Should they be included in your retirement portfolio?
As retirement planning becomes increasingly more complicated, holding Venture Capital Trusts (VCT’s) or Enterprise Investment Schemes (EIS’s) in your portfolio may prove beneficial.
Venture Capital Trusts.
VCTs are companies that are listed on the London Stock Exchange. They are run by a fund manager and aim to make money by investing in other – largely small or early-phase – companies.
VCTs can provide 30% income tax relief on new investments of up to £200,000 per tax year, they do not attract capital gains tax and they can pay regular tax-free dividends which makes them attractive for pension investors.
However, shares in a VCT must be held for at least five years to keep the tax relief. If sold before that time, the tax benefit will be lost.
Enterprise Investment Schemes.
The EIS is a government scheme designed to help smaller companies raise finance.
An EIS offers income tax relief of 30% on investments up to £1 million. The maximum permissible investment per individual, but shares must be held for at least three years from the date of issue. It should also be noted that income tax will be payable on any dividends paid.
As with VCTs, there is no capital gains tax payable on the disposal of an EIS after three years and there is also the ability to defer capital gains tax on different assets and benefit from an inheritance tax exemption after two years.
Whilst offering potentially advantageous tax advantages, both the VCT and the EIS are not investing in well-established companies and therefore carry a potentially higher risk than investing in blue-chip companies.
Advantages and risks Venture Capital Trusts and Enterprise Investment Schemes.
To understand the advantages and risks of these investments, it is wise to speak to an investment adviser. Anstee & Co. has advisers who are highly experienced in this field and will be happy to discuss whether these might be suitable investment vehicles for you. VCTs should be considered a longer-term investment and may be higher risk and more difficult to realise than other types of investments. Past performance is not an indication of future performance. The value of VCTs and EISs may fall as well as rise and investors may not get back what they originally invested. They may not be suitable for all investors. The tax treatment of these investments will depend on your individual circumstances and may be subject to future legislative change.
How Anstee & Co can help you.
Why not arrange an appointment with one of our independent financial advisers to find out if Venture Capital Trusts and Enterprise Investment Schemes could help you.