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
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.
Enterprise Investment Scheme
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).
Seed Enterprise Investment Scheme
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).
This article was previously published on Tilney prior to the launch of Evelyn Partners.