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.
So how can they save you from paying too much tax?
Venture Capital Trusts.
First of all, 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, mainly small or early-phase companies. A VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies. Also, as an investor, you could benefit from income in the form of dividends and, or capital growth.
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.
Furthermore, 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.
In contrast, Enterprise Investment Schemes (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. Also, 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.
The advantages and risks of Venture Capital Trusts and Enterprise Investment Schemes.
First of all, to understand the advantages and risks of these investments, it is wise to speak to an independent financial adviser. Anstee & Co. has financial 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. They may be a higher risk and more difficult to realise that other types of investments.
Above all, past performance is not an indication of future performance. The value of VCTs and EISs may fall as well as rise. Remember that you may not get back what you originally invested. They are not 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 with financial planning.
Therefore, why not arrange an appointment with one of our independent financial advisers to find out if VCTs and EISs could help you?
We have offices located in-
Additionally, we also have financial planners that live and make use of meeting rooms in-
Finally, why not contact us today to arrange your meeting. The first fact-finding meeting is free and without obligation.
Investments may fall as well as rise, you may not get back what you put in.